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Unemployment of Skilled and Unskilled Labor in an Open Economy: International Trade, Migration, and Outsourcing

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  • Richard A. Brecher
  • Zhiqi Chen

Abstract

We show how international trade, migration, and outsourcing affect unemployment of skilled and unskilled labor, in a framework that integrates the Heckscher-Ohlin model of trade with the Shapiro-Stiglitz model of unemployment. Our approach allows us to analyze changes in not only aggregate unemployment, but also the distribution of unemployment between skilled and unskilled labor. As the analysis demonstrates, the unemployment rates of these two types of labor often move in opposite directions, thereby dampening the change in aggregate unemployment. Results depend on the source of comparative advantage, based on international differences in (for example) unemployment insurance or production technology. Copyright � 2010 Blackwell Publishing Ltd.

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Bibliographic Info

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

Volume (Year): 18 (2010)
Issue (Month): 5 (November)
Pages: 990-1000

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Handle: RePEc:bla:reviec:v:18:y:2010:i:5:p:990-1000

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References

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  1. Jagdish Bhagwati & Arvind Panagariya & T. N. Srinivasan, 2004. "The Muddles over Outsourcing," International Trade 0408004, EconWPA.
  2. R.A. Brecher & Z. Chen & E.U. Choudhri, 1997. "Unemployment and Growth in the Long Run: An Efficiency-Wage Model with Optimal Savings," Carleton Economic Papers 00-01, Carleton University, Department of Economics, revised May 1999.
  3. Miles S. Kimball, 1989. "Labor Market Dynamics When Unemployment Is A Worker Discipline Device," NBER Working Papers 2967, National Bureau of Economic Research, Inc.
  4. Richard A. Brecher & Zhiqi Chen & Ehsan Choudhri, 2007. "Optimal Taxation in a Dynamic Model of Shirking and Unemployment: Shapiro and Stiglitz Meet Chamley," Carleton Economic Papers 07-07, Carleton University, Department of Economics, revised Aug 2010.
  5. Brecher, Richard A & Choudhri, Ehsan U, 1982. "Immiserizing Investment from Abroad: The Singer-Prebisch Thesis Reconsidered," The Quarterly Journal of Economics, MIT Press, vol. 97(1), pages 181-90, February.
  6. Adrian Wood, 1995. "How Trade Hurt Unskilled Workers," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 57-80, Summer.
  7. Brecher, Richard A., 1992. "An efficiency-wage model with explicit monitoring : Unemployment and welfare in an open economy," Journal of International Economics, Elsevier, vol. 32(1-2), pages 179-191, February.
  8. Davidson, Carl & Matusz, Steven J. & Shevchenko, Andrei, 2008. "Outsourcing Peter To Pay Paul: High-Skill Expectations And Low-Skill Wages With Imperfect Labor Markets," Macroeconomic Dynamics, Cambridge University Press, vol. 12(04), pages 463-479, September.
  9. Krugman, Paul R, 1993. "What Do Undergrads Need to Know about Trade?," American Economic Review, American Economic Association, vol. 83(2), pages 23-26, May.
  10. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  11. Copeland, B.R., 1988. "Efficiency Wages In A Richardian Model Of International Trade," UBC Departmental Archives 88-31, UBC Department of Economics.
  12. Ronald W. Jones, 1965. "The Structure of Simple General Equilibrium Models," Journal of Political Economy, University of Chicago Press, vol. 73, pages 557.
  13. Brecher, Richard A., 1974. "Optimal commercial policy for a minimum-wage economy," Journal of International Economics, Elsevier, vol. 4(2), pages 139-149, May.
  14. Brecher, Richard A. & Choudhri, Ehsan U., 1987. "International migration versus foreign investment in the presence of unemployment," Journal of International Economics, Elsevier, vol. 23(3-4), pages 329-342, November.
  15. Mussa, Michael, 1993. "Making the Practical Case for Freer Trade," American Economic Review, American Economic Association, vol. 83(2), pages 372-76, May.
  16. Brecher, Richard A, 1974. "Minimum Wage Rates and the Pure Theory of International Trade," The Quarterly Journal of Economics, MIT Press, vol. 88(1), pages 98-116, February.
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Cited by:
  1. Richard A. Brecher & Zhiqi Chen & Zhihao Yu, 2010. "The Trouble with Offshoring: Static and Dynamic Losses in the Presence of Unemployment," Carleton Economic Papers 11-02, Carleton University, Department of Economics, revised 15 Mar 2011.
  2. Richard A. Brecher & Zhiqi Chen, 2011. "Unemployment and Welfare Consequences of International Outsourcing under Monopolistic Competition," Carleton Economic Papers 11-07, Carleton University, Department of Economics.
  3. Heid, Benedikt & Larch, Mario, 2011. "Migration, trade and unemployment," Economics Discussion Papers 2011-45, Kiel Institute for the World Economy.

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