Rigid labour markets with trade and capital mobility: theory and evidence
AbstractWe develop a multi-country model with imperfect labour markets to study the effect of labour market frictions on bilateral trade flows. We use a framework that allows for goods trade and capital mobility and show that labour market imperfections exert opposite effects in the absence of capital mobility (the short run) and its presence (the long run), respectively. In the short run, a higher degree of labour market rigidity decreases the value of total trade, but increases the share of intra-industry trade for a country that is larger than its trading partner. The reverse effects are observed when capital is allowed to cross country borders. Using data on unemployment and income distribution for 23 OECD countries, we compute the central parameter in our theoretical model that describes the degree of labour market rigidity. We use this new empirical concept to provide evidence for our theoretical findings by means of reduced-form regressions as well as simulation results of a calibrated general equilibrium model.
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Bibliographic InfoArticle provided by Canadian Economics Association in its journal Canadian Journal of Economics.
Volume (Year): 44 (2011)
Issue (Month): 2 (May)
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Postal: Canadian Economics Association Prof. Steven Ambler, Secretary-Treasurer c/o Olivier Lebert, CEA/CJE/CPP Office C.P. 35006, 1221 Fleury Est Montréal, Québec, Canada H2C 3K4
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Find related papers by JEL classification:
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
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- Egger, Hartmut & Egger, Peter & Kreickemeier, Udo, 2011.
"Trade, wages, and profits,"
University of Tuebingen Working Papers in Economics and Finance
23, University of Tuebingen, Faculty of Economics and Social Sciences.
- Egger, Hartmut & Egger, Peter & Kreickemeier, Udo, 2011. "Trade, Wages, and Profits," CEPR Discussion Papers 8727, C.E.P.R. Discussion Papers.
- Hartmut Egger & Peter Egger & Udo Kreickemeier, 2012. "Trade, Wages, and Profits," CESifo Working Paper Series 3911, CESifo Group Munich.
- Udo Kreickemeier & Peter Egger & Hartmut Egger, 2012. "Trade, Wages, and Profits," 2012 Meeting Papers 188, Society for Economic Dynamics.
- Schmerer, Hans-Jörg, 2012. "FDI, skill-specific unemployment, and institutional spillover effects," Economics Discussion Papers 2012-2, Kiel Institute for the World Economy.
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