Labor Adjustment to Imports under Rational Expectations,
Abstract
The effects of imports on industry employment are often determined through the use of input-output studies. Input-output assumes that imports cause proportional and immediate effects on industry employment. Increases in imports will therefore be expected to cause large, sudden decreases in employment. The problem arises, however, that actual events are often poorly predicted by the input-output model. To better predict the effects of imports on employment, a model of the demand for labor was developed that allowed for gradual adjustment in employment to perceived changes in output, where these changes arise either from cyclical factors or an increase in competing imports. What is expected to be produced in the future was felt to be an important determinant of current employment needs and therefore was explicitly included in the labor demand model. According to our findings, expectations of future output are important determinants of industry employment demand in the majority of industries studied. Perhaps, more surprisingly, imports induce a slower adjustment in employment than does an equivalent change in GNP, the measure used to represent cyclical factors. Our results suggest input-output studies overestimate the effects of competing imports on employment in the industry. (Author)
Document Details
- Document Type
- Technical Report
- Publication Date
- Sep 01, 1980
- Accession Number
- ADA095984
Entities
People
- James M. Jondrow
- Robert A. Levy