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Job Creation, Job Destruction, and the International Division of Labor

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  • Marion Jansen
  • Alessandro Turrini

Abstract

The authors incorporate equilibrium unemployment due to imperfect matching into a model of trade in intermediate inputs. Firms are assumed to be price-takers and their size is given by technology. Firms enter the market as long as expected profits cover the search cost they incur initially; jobs are endogenously destroyed by random shocks that affect firms' price-cost margins. Trade increases productivity in the final good and then demand for each intermediate input. Steady-state unemployment is reduced after trade integration because the rate of job destruction is reduced, which in turn induces an indirect positive effect on job creation. A more volatile environment faced by firms does not necessarily increase unemployment. However, the rate of job destruction unambiguously rises, and rises more under free trade. Copyright Blackwell Publishing Ltd 2004.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 12 (2004)
Issue (Month): 3 (08)
Pages: 476-494

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Handle: RePEc:bla:reviec:v:12:y:2004:i:3:p:476-494

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  1. Davidson, Carl & Martin, Lawrence & Matusz, Steven, 1988. "The Structure of Simple General Equilibrium Models with Frictional Unemployment," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 96(6), pages 1267-93, December.
  2. Brecher, Richard A., 1992. "An efficiency-wage model with explicit monitoring : Unemployment and welfare in an open economy," Journal of International Economics, Elsevier, Elsevier, vol. 32(1-2), pages 179-191, February.
  3. Steve J. Davis & John Haltiwanger, 1991. "Gross job creation, gross job destruction and employment reallocation," Working Paper Series, Macroeconomic Issues, Federal Reserve Bank of Chicago 91-5, Federal Reserve Bank of Chicago.
  4. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  5. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 61(3), pages 397-415, July.
  6. Marimon, R. & Zilibotti, F., 1998. "Unemployment vs. Mismatch of Talents," Papers, Stockholm - International Economic Studies 661, Stockholm - International Economic Studies.
  7. Paul Krugman, 1995. "Growing World Trade: Causes and Consequences," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 327-377.
  8. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, American Economic Association, vol. 72(3), pages 389-405, June.
  9. Copeland, Brian R., 1989. "Efficiency wages in a Ricardian model of international trade," Journal of International Economics, Elsevier, Elsevier, vol. 27(3-4), pages 221-244, November.
  10. Krugman, Paul R, 1981. "Intraindustry Specialization and the Gains from Trade," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 89(5), pages 959-73, October.
  11. Davidson, C. & Martin, L. & Matusz, S., 1988. "Multiple Free Trade Equilibria In A Model Of Frictional Unemployment," Papers, Michigan State - Econometrics and Economic Theory 8716, Michigan State - Econometrics and Economic Theory.
  12. Levinsohn, J., 1996. "Frim Heterogeneity, Jobs, and International Trade: Evidence from Chile," Working Papers, Research Seminar in International Economics, University of Michigan 390, Research Seminar in International Economics, University of Michigan.
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Cited by:
  1. Paolo Epifani & Gino A. Gancia, 2001. "Geography, Migrations and Equilibrium Unemployment," Development Working Papers, Centro Studi Luca d\'Agliano, University of Milano 156, Centro Studi Luca d\'Agliano, University of Milano.
  2. Ben J. Heijdra & Christian Keuschnigg & Wilhelm Kohler, 2002. "Eastern Enlargement of the EU: Jobs, Investment and Welfare in Present Member Countries," CESifo Working Paper Series 718, CESifo Group Munich.
  3. Paolo Epifani, 1998. "Globalization and Regional Unemployment Divergence in the EU Countries," LIUC Papers in Economics, Cattaneo University (LIUC) 59, Cattaneo University (LIUC).
  4. Schuster, Philip, 2012. "Employment Protection, Labor Market Turnover, and the Effects of Globalization," Economics Series, Institute for Advanced Studies 288, Institute for Advanced Studies.
  5. Bernard Hoekman & Alan L. Winters, 2005. "Trade and Employment: Stylized Facts and Research Findings," Working Papers, United Nations, Department of Economics and Social Affairs 7, United Nations, Department of Economics and Social Affairs.
  6. Ben J. Heijdra & Christian Keuschnigg, 2000. "Integration and Search Unemployment: An Analysis of Eastern EU Enlargement," CESifo Working Paper Series 341, CESifo Group Munich.

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