Seung-Gyu Sim

Wage Dynamics with Private Learning-by-Doing and On-the-Job Search

This paper develops an equilibrium job search model in which the employed worker privately accumulates human capital and continually searches for a better paying job. In order to encourage production and discourage job turnover, firms reward their workers having better performance and longer job tenure by bonus payments and long service allowances. The resulting wages grow with human capital accumulation (productive promotion), and job tenure (non-productive promotion) as well as job-to-job transition. I estimate the model using indirect inference to investigate the effect of human capital accumulation on individual wage growth. In the NLSY79 data, the average wage of white male high school graduates after 20 years of market experience is 1.88 times larger than the average of the first full-time wages. A counterfactual experiment using the structural parameter estimates shows that if a typical worker were not able to accumulate human capital, his wage would grow by 41.8%.

Economic Growth and Labor Market Friction: A Quantitative Study on Japanese Structural Transformation

This paper develops a tractable multi-sector endogenous growth model with labor market friction and human capital accumulation to analyze the underlying link between economic growth and labor market institutions. The model, calibrated based on the Japanese structural transformation episodes, demonstrates that lifetime employment system has contributed to unprecedentedly rapid economic growth, by enhancing human capital accumulation and facilitating physical capital formation. The counterfactual experiment finds that had the job durations of a typical worker been 1 year (roughly one tenth of the actual average job duration) for 1960–1990 in the Japanese labor market, the non-agricultural GDP per capita in 1990 would have accounted for 71 percent of the actual values.

Trade Preferences and Political Equilibrium Associated with Trade Liberalization

ABSTRACTThis paper, motivated by the so-called North–South problem in trade, analyzes ex ante trade preferences and the source of potential political conflicts regarding trade liberalization. Developing a dynamic extension of the traditional Heckscher–Ohlin model with imperfect labor mobility and tracking overall dynamic paths from the autarky to free-trade steady states, we demonstrate that in the presence of inter-sectoral migration barrier, bilateral free-trade agreements can be welcomed (opposed) by the majority of workers in a capital-abundant (labor-abundant) country, which is inconsistent with the welfare prediction by Stolper and Samuelson. This paper also proposes a numerical algorithm to solve for the entire transition path of the model under rational expectation. Our simulation experiments further reveal that preannounced and delayed implementation can facilitate a bilateral free-trade agreement by partially neutralizing short-run transitional gains and losses so as to persuade the losers to su...

Imperfect Labor Mobility and the Trickle-down Effect in International Trade

Purpose Unlike the common belief in the so-called “trickle-down effect,” trade-induced output growth in a small open economy does not necessarily improve the domestic welfare of the economy. The purpose of this paper is to analyze the conditions under which the trickle-down effect does not work properly such that the connection between trade-induced output growth and welfare improvement is broken. Design/methodology/approach This paper introduces an inter-sectoral migration barrier in the general equilibrium model and conducts various simulation experiments under reasonable parameter values. Findings This paper demonstrates that subsidizing export industries may raise the total value-added of an economy but deteriorate aggregate welfare. This worsens especially when the supply of non-tradable domestic goods is inelastic, and the demand for them is more substitutable by tradable goods. Practical implications To reinforce the trickle-down effect, it is necessary to facilitate efficient labor reallocation and to induce capitalization in the non-tradable sector. Originality/value That output growth and welfare improvement do not always move in the same direction requires a reappraisal of the former common belief on the trickle-down effect which emphasizes output growth as an indicator of welfare improvement.

A Quantitative Study on Endogenous Formation of Comparative Advantage in South Korea

This paper incorporates search friction and human capital accumulation into an international trade framework to analyze the endogenous formation of comparative advantage induced by long-term employment relationship. The calibrated model demonstrates that the long-term employment relationship, by facilitating both human and physical capital formation, has contributed to South Koreas rapid ‘export-oriented industrialization.’ The counterfactual experiment reports that aggregate output in 2013 would have been reduced by one quarter, if South Korea had stayed as an autarky economy. Further counterfactual experiments find that had a typical workers job duration been about two years from 1960s to 2010s, output in 2013 would have been reduced by more than 42 percent. Also, South Korea might have exported primary products, not secondary products with even shorter job duration or less efficient learning-by-doing.

Competitive Dominance of Emission Trading Over Pigouvian Taxation in a Globalized Economy

It is well-known that the Pigouvian taxation scheme and emission trading scheme (delegating the emission pricing authority to the market mechanism) offer equivalent incentives to reduce emissions in various autarky settings. In contrast, we demonstrate that in a globalized economy with international trade and cross border pollution, adopting the latter is the strict dominant strategy of each country, and global welfare is maximized when all countries adopt the latter. Adopting the latter incentivizes the other country to tighten its environmental regulation without concern for excessive shrink of domestic production and aggravation of cross border pollution from the adopting country. JEL Classification: H23, L51, Q56, Q58

Inelastic Supply of Fossil Energy and Competing Environmental Policies

The inelastic supply of fossil energy in the international input market precipitates failure of Pigouvian taxation consequent to competition among governments, as imposition of an environmental tax increases (decreases) the marginal cost of domestic (foreign) firms. This paper demonstrates that unless the supply of fossil energy is perfectly elastic, cap-and-trade outperforms Pigouvian taxation in terms of the domestic welfare of adopting countries, and global welfare is maximized when all countries implement the alternative scheme. We further demonstrate that the linkage of permit markets, when the energy supply is sufficiently inelastic, improves global welfare.

The Most Favored Nation Principle: Passive Constraint or Active Commitment?

This study examines how the welfare implication of the i?½i?½most-favored-nationi?½i?½ (MFN) principle changed when the trade agreement mode shifted from a i?½i?½one-shot-multilateral-trade-agreementi?½i?½ to i?½i?½sequential-bilateral-trade-agreements.i?½i?½It emphasizes that the MFN principle works as i?½i?½passive constraintsi?½i?½in the former but i?½i?½active commitmentsi?½i?½in the latter. Under the sequential-bilateral-trade-agreements , (i) an importing country strategically takes a cost-efficient country as its first (second) trading partner when the MFN principle is (not) embedded, and (ii) embedding the MFN clause improves the trade surplus of the importing country and the world economy. The MFN principle is utilized by the cost-efficient country as a commitment device to encourage production. This principle reverses the welfare implication in the existing literature. Finally, the importing country prefers the sequential agreements with the MFN clause to other cases in which it can choose simultaneous or sequential agreements with/without the MFN clause

Schooling Investment in Frictional Labor Markets

This paper studies how and to what extent labor market friction affects workers schooling decisions. We use a standard on the job search model with schooling decisions that highlights the roles of employment-to-employment transition rate, job finding rate and separation rate in schooling through two channels: opportunity cost of college education and employment duration. While higher opportunity costs reduce the incentives for schooling, higher employment duration can help agents enjoy higher skill prices for a longer time and lead to more investment in schooling. Consistent with the data, our model economy predicts that higher employment-to-employment transition rates decrease the share of college graduates, while higher job finding and separation rates increase it. Unlike the previous literature, we find that market equilibrium generates over-investment in schooling in the U.S., which can be resolved by enhancing the quality of higher education.

Input Price Discrimination, Advertisement Efforts, and Welfare

This paper examines a monopolistic suppliers optimal decision of input prices when two downstream sellers simultaneously choose their advertisement efforts and, then, output levels. In contrast to the previous literature, it demonstrates that allowing third-degree price discrimination leads the supplier to offer the cost-efficient seller a price discount and charge the other inefficient seller a higher fee to clarify the claim on the demand enhanced by advertisement and to avoid the under-advertisement problem. Therefore, it may increase aggregate output and social surplus - the reverse of the welfare implications in the previous literature.