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Endogenous labor market institutions in an open economy

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  • Felbermayr, Gabriel J.
  • Larch, Mario
  • Lechthaler, Wolfgang

Abstract

The paper sets up a two-country asymmetric trade model with heterogeneous firms, search frictions and endogenous labor market institutions. Countries are linked by trade in goods and non-cooperatively set unemployment benefits to maximize national welfare. We show that more open and smaller economies have more generous unemployment benefit replacement rates as a larger fraction of the costs is borne by foreign trading partners. These results are in line with empirical stylized facts. Additionally, we find that the optimal level of unemployment benefits is independent from the level of unemployment benefits abroad and that non-cooperatively set unemployment rates are inefficiently high.

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Bibliographic Info

Article provided by Elsevier in its journal International Review of Economics & Finance.

Volume (Year): 23 (2012)
Issue (Month): C ()
Pages: 30-45

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Handle: RePEc:eee:reveco:v:23:y:2012:i:c:p:30-45

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Web page: http://www.elsevier.com/locate/inca/620165

Related research

Keywords: Endogenous labor market institutions; Unemployment; International trade; Search frictions; Heterogeneous firms;

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References

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Citations

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Cited by:
  1. Braun, Sebastian & Spielmann, Christian, 2012. "Wage subsidies and international trade: When does policy coordination pay?," Economics Discussion Papers 2012-9, Kiel Institute for the World Economy.
  2. Potrafke, Niklas, 2013. "Globalization and labor market institutions: International empirical evidence," Munich Reprints in Economics 19288, University of Munich, Department of Economics.
  3. Schmerer, Hans-Jörg, 2014. "Foreign direct investment and search unemployment: Theory and evidence," International Review of Economics & Finance, Elsevier, vol. 30(C), pages 41-56.
  4. Povilas Lastauskas, 2013. "Europe’s Revolving Doors: Import Competition and Endogenous Firm Entry InstitutionS," Cambridge Working Papers in Economics 1360, Faculty of Economics, University of Cambridge.
  5. Stefan Kipar, 2011. "The Effect of Restrictive Bank Lending on Innovation: Evidence from a Financial Crisis," Ifo Working Paper Series Ifo Working Paper No. 109, Ifo Institute for Economic Research at the University of Munich.
  6. Povilas Lastauskas, 2013. "Europe's Revolving Doors: Import Competition and Endogenous Firm Entry Institutions," Kiel Advanced Studies Working Papers 464, Kiel Institute for the World Economy.

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