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Comparative Advantage and Skill-Specific Unemployment

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  • Mario Larch
  • Wolfgang Lechthaler

Abstract

We introduce unemployment and endogenous selection of workers into different skill-classes in a trade model with two sectors and heterogeneous firms. This allows us to study the distributional consequences and the skill-specific unemployment effects of trade liberalization. We show that the gains from trade will be distributed very unequally. While unskilled workers loose in terms of real wages and employment levels in the skilled labor intensive sector, skilled workers loose in terms of real wages and unemployment levels in the unskilled labor intensive sector. However, the inequality of workers between sectors is much larger for skilled labor than for unskilled labor. On average, unemployment among unskilled workers increases when a skill-abundant country opens up to trade.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2754.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2754

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Keywords: comparative advantage; heterogeneous firms; labor market frictions; unemployment; trade liberalization;

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References

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Citations

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Cited by:
  1. Michael Funke & Yu-Fu Chen, 2009. "Booms, Recessions and Financial Turmoil: A Fresh Look at Investment Decisions under Cyclical Uncertainty," Quantitative Macroeconomics Working Papers, Hamburg University, Department of Economics 20908, Hamburg University, Department of Economics.
  2. Schmerer, Hans-Jörg, 2012. "FDI, skill-specific unemployment, and institutional spillover effects," Economics Discussion Papers 2012-2, Kiel Institute for the World Economy.
  3. Wolfgang Lechthaler & Mariya Mileva, 2013. "Two-Country Dynamic Model of Trade with Heterogeneous Firms and Comparative Advantage," WWWforEurope Working Papers series, WWWforEurope 12, WWWforEurope.
  4. Marco de Pinto & Jochen Michaelis, 2011. "International Trade and Unemployment - the Worker-Selection Effect," MAGKS Papers on Economics, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) 201127, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  5. Beker, Victor A., 2012. "A case study on trade liberalization: Argentina in the 1990s," Economics Discussion Papers 2012-3, Kiel Institute for the World Economy.
  6. Engelmann, Sabine, 2011. "Trade liberalisation, technical change and skill-specific unemployment," IAB Discussion Paper 201119, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  7. Chen, Yu-Fu & Funke, Michael, 2009. "Booms, Recessions and Financial Turmoil: A Fresh Look at Investment Decisions under Cyclical Uncertainty," SIRE Discussion Papers, Scottish Institute for Research in Economics (SIRE) 2009-31, Scottish Institute for Research in Economics (SIRE).
  8. Schmerer, Hans-Jörg, 2012. "Skill-biased labor market reforms and international competitiveness," IAB Discussion Paper 201224, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  9. Wolfgang Lechthaler & Mariya Mileva, 2014. "Smoothing the adjustment to trade liberalization," WWWforEurope Working Papers series, WWWforEurope 61, WWWforEurope.

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