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Trade in Unemployment

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  • Céline CARRERE

    (Université de Genève)

  • Marco FUGAZZA

    (FERDI)

  • Marcelo OLARREAGA

    (FERDI)

  • Frédéric ROBERT-NICOUD

    (FERDI)

Abstract

We embed a model of the labor market with sector-specific search-and-matching frictions into a Ricardian model with a continuum of goods to show that trade liberalization causes higher unemployment in countries with comparative advantage in sectors with strong labor market frictions and leads to lower unemployment in countries with comparative advantage in sectors with weak labor market frictions. We test this prediction in a panel dataset of 97 countries during the period 1995-2009 and find that the data supports the theoretical prediction. Our results also help reconciliate the apparently contradicting evidence in the empirical literature on the impact of trade on unemployment.

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Paper provided by FERDI in its series Working Papers with number P101.

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Date of creation: May 2014
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Handle: RePEc:fdi:wpaper:1578

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  1. Davidson, Carl & Martin, Lawrence & Matusz, Steven, 1999. "Trade and search generated unemployment," Journal of International Economics, Elsevier, vol. 48(2), pages 271-299, August.
  2. Hausmann, Ricardo & Hwang, Jason & Rodrik, Dani, 2005. "What You Export Matters," Working Paper Series rwp05-063, Harvard University, John F. Kennedy School of Government.
  3. Oleg Itskhoki & Elhanan Helpman, 2008. "Labor Market Rigidities, Trade and Unemployment," 2008 Meeting Papers 690, Society for Economic Dynamics.
  4. 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.
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  6. Arnaud Costinot, 2009. "Jobs, Jobs, Jobs: A "New" Perspective on Protectionism," Journal of the European Economic Association, MIT Press, vol. 7(5), pages 1011-1041, 09.
  7. Justin R. Pierce & Peter K. Schott, 2012. "The Surprisingly Swift Decline of U.S. Manufacturing Employment," NBER Working Papers 18655, National Bureau of Economic Research, Inc.
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  9. Dornbusch, Rudiger & Fischer, Stanley & Samuelson, Paul A, 1977. "Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods," American Economic Review, American Economic Association, vol. 67(5), pages 823-39, December.
  10. Donald R. Davis & James Harrigan, 2007. "Good jobs, bad jobs, and trade liberalization," Discussion Papers 0607-07, Columbia University, Department of Economics.
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  12. James E. Anderson, 2009. "Globalization and Income Distribution: A Specific Factors Continuum Approach," NBER Working Papers 14643, National Bureau of Economic Research, Inc.
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  14. Erhan Artu� & Shubham Chaudhuri & John McLaren, 2010. "Trade Shocks and Labor Adjustment: A Structural Empirical Approach," American Economic Review, American Economic Association, vol. 100(3), pages 1008-45, June.
  15. Currie, Janet & Harrison, Ann E, 1997. "Sharing the Costs: The Impact of Trade Reform on Capital and Labor in Morocco," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages S44-71, July.
  16. Thomas Vollrath, 1991. "A theoretical evaluation of alternative trade intensity measures of revealed comparative advantage," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 127(2), pages 265-280, June.
  17. Mauricio Mesquita Moreira & Sheila Najberg, 2000. "Trade liberalisation in Brazil: Creating or exporting jobs?," Journal of Development Studies, Taylor & Francis Journals, vol. 36(3), pages 78-99.
  18. Chris Robinson, 1995. "Union Incidence in the Public and Private Sectors," Canadian Journal of Economics, Canadian Economics Association, vol. 28(4b), pages 1056-76, November.
  19. Revenga, Ana, 1997. "Employment and Wage Effects of Trade Liberalization: The Case of Mexican Manufacturing," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages S20-43, July.
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