The Shimer-Puzzle of International Trade: A Quantitative Analysis
AbstractRecent theoretical literature studies how labor market reforms in one country can affect labor market outcomes in other countries, thereby rationalizing widely-held policy beliefs and empirical evidence. But what is the quantitative relevance of such spillover effects? This paper combines two recent workhorse models: the canonical search-and-matchingframework and the heterogeneous firms international trade model. Qualitatively, the framework confirms that labor market reforms in one country benefit its trading partners, replicating the stylized facts. However, when wages are bargained flexibly, the model quantitatively underestimates the correlation of structural unemployment rates across countries. This mirrors the well-known finding by Shimer (2005) by which thestandard search-and-matching model predicts too small fluctuations of unemployment rates over time. Introducing real wage rigidity remedies this problem.
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Bibliographic InfoPaper provided by Ifo Institute for Economic Research at the University of Munich in its series Ifo Working Paper Series with number Ifo Working Paper No. 134.
Date of creation: 2012
Date of revision:
Spillover effects of labor market institutions; unemployment; international trade; search frictions; heterogeneous firms.;
Find related papers by JEL classification:
- F11 - International Economics - - Trade - - - Neoclassical Models of Trade
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
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