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

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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.

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Bibliographic Info

Paper provided by Carleton University, Department of Economics in its series Carleton Economic Papers with number 08-07.

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Length: 27 pages
Date of creation: Sep 2008
Date of revision: Nov 2010
Publication status: Published: Revised version in Review of International Economics, Vol. 18, No. 5 (November 2010), pp. 990-1000
Handle: RePEc:car:carecp:08-07

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  1. 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.
  2. 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.
  3. Devashish Mitra & Priya Ranjan, 2007. "Offshoring and Unemployment," Working Papers 060719, University of California-Irvine, Department of Economics.
  4. Mussa, Michael, 1993. "Making the Practical Case for Freer Trade," American Economic Review, American Economic Association, vol. 83(2), pages 372-76, May.
  5. 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.
  6. Copeland, Brian R., 1989. "Efficiency wages in a Ricardian model of international trade," Journal of International Economics, Elsevier, vol. 27(3-4), pages 221-244, November.
  7. Kimball, Miles S, 1994. "Labor-Market Dynamics When Unemployment is a Worker Discipline Device," American Economic Review, American Economic Association, vol. 84(4), pages 1045-59, September.
  8. Adrian Wood, 1995. "How Trade Hurt Unskilled Workers," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 57-80, Summer.
  9. Brecher, Richard A., 1974. "Optimal commercial policy for a minimum-wage economy," Journal of International Economics, Elsevier, vol. 4(2), pages 139-149, 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. Nickell, Stephen & Bell, Brian, 1995. "The Collapse in Demand for the Unskilled and Unemployment across the OECD," Oxford Review of Economic Policy, Oxford University Press, vol. 11(1), pages 40-62, Spring.
  12. Jagdish Bhagwati & Arvind Panagariya, 2004. "The Muddles over Outsourcing," Journal of Economic Perspectives, American Economic Association, vol. 18(4), pages 93-114, Fall.
  13. Richard A. Breche & Zhiqi Chen & Ehsan U. Choudhri, 2002. "Unemployment and Growth in the Long Run: An Efficiency-Wage Model with Optimal Savings," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(3), pages 875-894, August.
  14. 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.
  15. 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.
  16. Davis, Donald R, 1998. "Does European Unemployment Prop Up American Wages? National Labor Markets and Global Trade," American Economic Review, American Economic Association, vol. 88(3), pages 478-94, June.
  17. 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.
  18. Ronald W. Jones, 1965. "The Structure of Simple General Equilibrium Models," Journal of Political Economy, University of Chicago Press, vol. 73, pages 557.
  19. 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.
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Citations

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Cited by:
  1. 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.
  2. Benedikt Heid & Mario Larch, 2011. "Migration, Trade and Unemployment," Ifo Working Paper Series Ifo Working Paper No. 115, Ifo Institute for Economic Research at the University of Munich.
  3. Anwar, Sajid & Sun, Sizhong & Valadkhani, Abbas, 2013. "International outsourcing of skill intensive tasks and wage inequality," Economic Modelling, Elsevier, vol. 31(C), pages 590-597.
  4. Richard A. Brecher & Zhiqi Chen & Zhihao Yu, 2011. "The Trouble with Offshoring: Static and Dynamic Losses in the Presence of Unemployment," Carleton Economic Papers 11-02, Carleton University, Department of Economics, revised Jan 2013.
  5. Anwar, Sajid, 2013. "Outsourcing and the skilled–unskilled wage gap," Economics Letters, Elsevier, vol. 118(2), pages 347-350.

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