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International Trade, the Division of Labor, and Unemployment

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Author Info
Matusz, Steven J

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Abstract

The author merges a model of monopolistic competition in the production of intermediate goods with the Shapiro-Stiglitz model of efficiency wages to show that the introduction of international trade leads to increased employment in both countries. The intuition is that trade results in a greater division of labor due to the increased variety of available intermediates. The resulting increase in productivity yields higher real wages, thus relaxing the efficiency-wage constraint and permitting an increase in employment. The increase in employment then magnifies the benefits of trade. Similar reasoning applies even when unemployment is generated from other processes. Copyright 1996 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 37 (1996)
Issue (Month): 1 (February)
Pages: 71-84
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Handle: RePEc:ier:iecrev:v:37:y:1996:i:1:p:71-84

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  3. Cuñat, Alejandro & Melitz, Marc J, 2007. "Volatility, Labour Market Flexibility, and the Pattern of Comparative Advantage," CEPR Discussion Papers 6297, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  4. Donald R. Davis & James Harrigan, 2007. "Good jobs, bad jobs, and trade liberalization," Discussion Papers 0607-07, Columbia University, Department of Economics. [Downloadable!]
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  5. Heijdra, Ben J. & Keuschnigg , Christian & Kohler, Wilhelm, 2002. "Eastern Enlargement of the EU: Jobs, Investment and Welfare in Present Member Countries," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  6. Abdel-Rahman, Hesham M., 2003. "Skill distribution and income disparity in a north-south trade model," Working Papers 2003-12, University of New Orleans, Department of Economics and Finance. [Downloadable!]
  7. Eckhard Janeba, 2007. "Exports, Umemployment and the Welfare State," cege – Center for European, Governance and Economic Development Research Discussion Papers 60, cege – Center for European, Governance and Economic Development Research, University of Goettingen (Germany).. [Downloadable!]
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  10. Ziesemer,Thomas, 2002. "Monopolistic Competition, Search Unemployment, and Macroeconomics," Research Memoranda 021, Maastricht : MERIT, Maastricht Economic Research Institute on Innovation and Technology. [Downloadable!]
  11. Eckhard Janeba, 2007. "Exports, Unemployment and the Welfare State," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  14. Barbara Dluhosch & Michael Burda, 2000. "Cost Competition, Fragmentation and Globalization," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  18. Paolo Epifani, 1998. "Globalization and Regional Unemployment Divergence in the EU Countries," LIUC Papers in Economics 59, Cattaneo University (LIUC). [Downloadable!]
  19. Matusz, Steven J. & Tarr, David, 1999. "Adjusting to trade policy reform," Policy Research Working Paper Series 2142, The World Bank. [Downloadable!]
  20. Joseph F. Francois & Douglas Nelson, 1998. "A Geometry of Specialization," Tinbergen Institute Discussion Papers 98-006/2, Tinbergen Institute. [Downloadable!]
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