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Trade in Unemployment

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  • Céline CARRERE

    (University of Geneva)

  • 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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Bibliographic Info

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:1580

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  1. Donald R. Davis & James Harrigan, 2007. "Good jobs, bad jobs, and trade liberalization," Discussion Papers 0607-07, Columbia University, Department of Economics.
  2. Proudman, J. & Redding, S., 1998. "Evolving Patterns of International Trade," Economics Papers 144, Economics Group, Nuffield College, University of Oxford.
  3. James E. Anderson, 2009. "Globalization and Income Distribution: A Specific Factors Continuum Approach," NBER Working Papers 14643, National Bureau of Economic Research, Inc.
  4. Ricardo Hausmann & Jason Hwang & Dani Rodrik, 2005. "What You Export Matters," NBER Working Papers 11905, National Bureau of Economic Research, Inc.
  5. Elhanan Helpman & Oleg Itskhoki & Stephen Redding, 2010. "Inequality and Unemployment in a Global Economy," Econometrica, Econometric Society, vol. 78(4), pages 1239-1283, 07.
  6. 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.
  7. R. Dornbusch & S. Fischer & P. A. Samuelson, 1976. "Comparative Advantage, Trade and Payments in a Ricardian Model With a Continuum of Goods," Working papers 178, Massachusetts Institute of Technology (MIT), Department of Economics.
  8. 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.
  9. Elhanan Helpman & Oleg Itskhoki, 2010. "Labour Market Rigidities, Trade and Unemployment," Review of Economic Studies, Oxford University Press, vol. 77(3), pages 1100-1137.
  10. 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.
  11. Hartmut Egger & Udo Kreickemeier, 2009. "Firm Heterogeneity And The Labor Market Effects Of Trade Liberalization," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(1), pages 187-216, 02.
  12. 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.
  13. Pierce, Justin R. & Schott, Peter K., 2013. "The Surprisingly Swift Decline of U.S. Manufacturing Employment," Finance and Economics Discussion Series 2014-4, Board of Governors of the Federal Reserve System (U.S.).
  14. 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.
  15. 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.
  16. 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.
  17. 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.
  18. Davidson, Carl & Martin, Lawrence & Matusz, Steven, 1999. "Trade and search generated unemployment," Journal of International Economics, Elsevier, vol. 48(2), pages 271-299, August.
  19. 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.
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