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Wages And Unemployment : Trade-Off Under Different Labour Market Paradigms

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Author Info
Olivier Bontout
Sebastien Jean

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Abstract

The aim of this study is to assess and compare the impact of trade and technology shocks under different labour market paradigms. This is done using a stylised computable general equilibrium (CGE) model, compatible with the new trade theories. We assume alternatively that wages are flexible, that relative wages are rigid, and that wages are bargained (WS-PS model). This latter case appears as intermediary between both of the others, which correspond respectively to perfect flexibility and perfect rigidity of the wage structure. We find that the more rigid the wage structure is, the less favourable the effect on welfare is and the less important the evolution of income inequalities are. This "trade-off" between welfare and inequalities is quantified, and it is shown to be fairly independent of the nature of these asymmetrical shocks. For unskilled labour, the labour market functioning boils down to a trade-off between real wages and employment. We also find that the less substitutable the production factors are, the lower the employment-cost of a given correction in relative wages is, and the less costly a decrease in inequalities through a different labour market setting is in terms of welfare.

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Paper provided by CEPII research center in its series Working Papers with number 1998-13.

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Date of creation: Nov 1998
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Handle: RePEc:cii:cepidt:1998-13

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Related research
Keywords: Labour market; International trade; Skilled-biased technical change; General equilibrium model;

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Find related papers by JEL classification:
D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
J5 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining

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  1. Gasiorek, Michael & Smith, Alasdair & Venables, Anthony J., 1992. "`1992': Trade and Welfare; A General Equilibrium Model," CEPR Discussion Papers 672, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  2. Olivier Cortes & Sebastien Jean, 1996. "Pays emergents, emploi deficient ?," Working Papers 1996-05, CEPII research center. [Downloadable!]
  3. Paul Krugman, 1995. "Growing World Trade: Causes and Consequences," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1995-1), pages 327-377. [Downloadable!]
  4. Mercenier, Jean, 1995. "Can "1992" reduce unemployment in Europe? On welfare and employment effects of Europe's move to a single market," Journal of Policy Modeling, Elsevier, vol. 17(1), pages 1-37, February. [Downloadable!] (restricted)
  5. Manning, Alan, 1991. "The Determinants of Wage Pressure: Some Implications of a Dynamic Model," Economica, London School of Economics and Political Science, vol. 58(231), pages 325-39, August. [Downloadable!] (restricted)
  6. Bean, Charles R, 1994. "European Unemployment: A Survey," Journal of Economic Literature, American Economic Association, vol. 32(2), pages 573-619, June. [Downloadable!] (restricted)
  7. Joaquim Oliveira Martins, 1993. "Market Structure, International Trade and Relative Wages," OECD Economics Department Working Papers 134, OECD, Economics Department. [Downloadable!]
  8. repec:fth:prinin:343 is not listed on IDEAS
  9. Naylor, Robin, 1998. "International trade and economic integration when labour markets are generally unionised," European Economic Review, Elsevier, vol. 42(7), pages 1251-1267, July. [Downloadable!] (restricted)
  10. Pierre Cahuc & André Zylberberg, 1999. "Le modèle WS-PS," Annales d'Economie et de Statistique, ADRES, issue 53, pages 01, Janvier-M. [Downloadable!]
  11. Layard, R. & Nickell, S., . "Layard-Nickell," Instructional Stata datasets for econometrics layardnickell, Boston College Department of Economics. [Downloadable!]
  12. Nickell, S J & Andrews, M, 1983. "Unions, Real Wages and Employment in Britain 1951-79," Oxford Economic Papers, Oxford University Press, vol. 35(0), pages 183-206, Supplemen. [Downloadable!] (restricted)
  13. Manning, Alan, 1993. "Wage Bargaining and the Phillips Curve: The Identification and Specification of Aggregate Wage Equations," Economic Journal, Royal Economic Society, vol. 103(416), pages 98-118, January. [Downloadable!] (restricted)
    Other versions:
  14. Schmalensee, Richard, 1992. "Sunk Costs and Market Structure: A Review Article," Journal of Industrial Economics, Blackwell Publishing, vol. 40(2), pages 125-34, June. [Downloadable!] (restricted)
  15. David Card, 1995. "The Wage Curve: A Review," Journal of Economic Literature, American Economic Association, vol. 33(2), pages 285-299, June. [Downloadable!] (restricted)
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  16. Wood, Adrian, 1995. "How Trade Hurt Unskilled Workers," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 57-80, Summer. [Downloadable!] (restricted)
  17. 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. [Downloadable!] (restricted)
  18. Edward E. Leamer, 1996. "In Search of Stolper-Samuelson Effects on U.S. Wages," NBER Working Papers 5427, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  19. Fernando Barran & Virginie Coudert & Benoit Mojon, 1994. "Transmission de la politique monetaire et credit bancaire, une application a 5 pays de l'OCDE," Working Papers 1994-03, CEPII research center. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Sébastien Jean & Olivier Bontout, 2001. "What Drove Relative Wages in France? Structural Decomposition Analysis in a General Equilibrium Framework, 1970-92," Economics Working Papers 005, European Network of Economic Policy Research Institutes. [Downloadable!]
    Other versions:
  2. Benoit Mojon, 1998. "Monetary Policy under a Fixed Exchange Rate Regime, the Case of France 1987-1996," Working Papers 1998-14, CEPII research center. [Downloadable!]
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