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Exports, Umemployment and the Welfare State

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Author Info
Eckhard Janeba ()
Abstract

The paper analyzes the labor market effects of globalization when foreign market entry is costly and risky. With flexible labor markets, a fall in foreign market entry cost tends to generate more income inequality. By contrast, when workers cannot easily switch industries and wages are inflexible in the short run, globalization tends to increase unemployment. In this situation, government unemployment benefits reduce the wages that exporting firm’s need to pay workers as risk compensation. Thus more firms within an industries and more industries become exporters. The above findings are consistent with popular views about the globalization effects in the U.S. and continental Europe. The results also suggest that the welfare state can simultaneously cause an increase in unemployment and exports.

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Publisher Info
Paper provided by cege – Center for European, Governance and Economic Development Research, University of Goettingen (Germany). in its series cege – Center for European, Governance and Economic Development Research Discussion Papers with number 60.

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Length: 27
Date of creation: 12 Mar 2007
Date of revision:
Handle: RePEc:got:cegedp:60

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Web page: http://www.cege.uni-goettingen.de
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Related research
Keywords: Income inequality; unemployment; exporters; beachhead costs; globalization;

Find related papers by JEL classification:
D4 - Microeconomics - - Market Structure and Pricing
F1 - International Economics - - Trade
H2 - Public Economics - - Taxation, Subsidies, and Revenue

This paper has been announced in the following NEP Reports:

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  3. Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, vol. 87(4), pages 545-64, September. [Downloadable!] (restricted)
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    Other versions:
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  15. Richard Baldwin, 2005. "Heterogeneous Firms and Trade: Testable and Untestable Properties of the Melitz Model," NBER Working Papers 11471, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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