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Trade and the (Dis)Incentive to Reform Labor Markets: The Case of Reform in the European Union

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  • George Alessandria - Alain Delacroix

Abstract

In a closed economy general equilibrium model, Hopenhayn and Rogerson (1993) find large welfare gains to removing firing restrictions. We explore the extent to which international trade alters this result. When economies trade, labor market policies in one country spill over to other countries through a change in the terms of trade. This reduces the incentive to reform labor markets. In a policy game over firing taxes between countries, we find that countries optimally choose positive levels of firing taxes. A coordinated elimination of firing taxes yields considerable benefits. This insight provides some explanation for recent efforts toward labor market reform in the European Union

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Paper provided by Econometric Society in its series Econometric Society 2004 North American Summer Meetings with number 233.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:nasm04:233

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Keywords: Trade; Labor Market Reform;

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Citations

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Cited by:
  1. Busl, Claudia & Seymen, Atılım, 2013. "The German labour market reforms in a European context: A DSGE analysis," ZEW Discussion Papers 13-097, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. Alessandria, George & Delacroix, Alain, 2008. "Trade and the (dis)incentive to reform labor markets: The case of reform in the European Union," Journal of International Economics, Elsevier, vol. 75(1), pages 151-166, May.
  3. Oleg Itskhoki & Elhanan Helpman, 2008. "Labor Market Rigidities, Trade and Unemployment," 2008 Meeting Papers 690, Society for Economic Dynamics.
  4. Alain Delacroix & Etienne Wasmer, 2007. "Job and Workers Flows in Europe and the US: Specific Skills or Employment Protection?. Midwest Macroeconomics Meetings 2007, April 27-29, 2007, Cleveland, Ohio," Sciences Po publications info:hdl:2441/9938, Sciences Po.
  5. Alain Delacroix & Etienne Wasmer, 2009. "Layoff Costs and Efficiency with Asymmetric Information," Sciences Po publications info:hdl:2441/5l6uh8ogmqi, Sciences Po.
  6. Claudia Busl & Atilim Seymen, 2013. "(Spillover) Effects of Labour Market Reforms in Germany and France," WWWforEurope Working Papers series 8, WWWforEurope.
  7. Wolf-Heimo Grieben & Fuat Sener, 2009. "Labor Unions, Globalization, and Mercantilism," CESifo Working Paper Series 2889, CESifo Group Munich.
  8. Dao, Mai Chi, 2013. "Foreign labor costs and domestic employment: What are the spillovers?," Journal of International Economics, Elsevier, vol. 89(1), pages 154-171.

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