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Trade liberalization, unemployment, and inequality with endogenous job destruction

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  • Ranjan, Priya

Abstract

In a two sector extension of the Mortensen–Pissarides model of endogenous job destruction, it is shown that trade liberalization increases both job creation and job destruction in the import competing sector and reduces them in the export sector. Since trade liberalization increases unemployment in the import competing sector and reduces it in the export sector, the impact on economy wide unemployment is ambiguous. While job destruction increases upon impact in the import competing sector, there is no immediate decrease in job destruction in the export sector leading to short term spikes in the net job destruction and unemployment rates in response to trade liberalization. Trade liberalization increases intersectoral wage inequality, however, intra-sectoral wage inequality increases in the export sector but decreases in the import competing sector. Finally, a more generous unemployment benefit increases the responsiveness of job destruction to trade liberalization.

Suggested Citation

  • Ranjan, Priya, 2012. "Trade liberalization, unemployment, and inequality with endogenous job destruction," International Review of Economics & Finance, Elsevier, vol. 23(C), pages 16-29.
  • Handle: RePEc:eee:reveco:v:23:y:2012:i:c:p:16-29
    DOI: 10.1016/j.iref.2011.10.003
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    Cited by:

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    2. Dhamija, Nidhi, 2019. "Trade Liberalization and Unemployment in India: A State Level Analysis," MPRA Paper 95001, University Library of Munich, Germany.
    3. Nazia Anjum & Zahid Perviz, 2016. "Effect of Trade Openness on Unemployment in Case of Labour and Capital Abundant Countries," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 5(1), pages 44-58, March.
    4. Zhang, Jingjing, 2015. "International factor mobility, elasticity of substitution in production and the skilled–unskilled wage gap," International Review of Economics & Finance, Elsevier, vol. 35(C), pages 122-129.
    5. Sun, Sizhong & Anwar, Sajid, 2015. "Taxation of labour, product varieties and skilled–unskilled wage inequality: Short run versus long run," International Review of Economics & Finance, Elsevier, vol. 38(C), pages 250-257.
    6. Lukas Mohler & Rolf Weder & Simone Wyss, 2018. "International trade and unemployment: towards an investigation of the Swiss case," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 154(1), pages 1-12, December.
    7. Anwar, Sajid & Sun, Sizhong, 2015. "Taxation of labour income and the skilled–unskilled wage inequality," Economic Modelling, Elsevier, vol. 47(C), pages 18-22.
    8. Jain, Sanjay & Majumdar, Sumon, 2016. "State capacity, redistributive compensation and the political economy of economic policy reform," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 462-473.
    9. Zhang, Jingjing, 2013. "Factor mobility and skilled–unskilled wage inequality in the presence of internationally traded product varieties," Economic Modelling, Elsevier, vol. 30(C), pages 579-585.
    10. Chan, Kenneth S. & Zhou, Xianbo & Pan, Zhewen, 2014. "The growth and inequality nexus: The case of China," International Review of Economics & Finance, Elsevier, vol. 34(C), pages 230-236.

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    More about this item

    Keywords

    Trade liberalization; Job destruction; Unemployment; Wage inequality;
    All these keywords.

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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