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Comparative Advantage and Skill-specific Unemployment

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  • Mario Larch
  • Wolfgang Lechthaler

Abstract

We introduce unemployment and endogenous selection of workers into different skill-classes in a trade model with two sectors and heterogeneous firms. This allows us to study the distributional consequences and the skill-specific unemployment effects of trade liberalization. We show that the gains from trade will be distributed very unequally. While unskilled workers loose in terms of real wages and employment levels in the skilled labor intensive sector, skilled workers loose in terms of real wages and unemployment levels in the unskilled labor intensive sector. However, the inequality of workers between sectors is much larger for skilled labor than for unskilled labor. On average, unemployment among unskilled workers increases when a skill-abundant country opens up to trade

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1538.

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Length: 45 pages
Date of creation: Aug 2009
Date of revision:
Handle: RePEc:kie:kieliw:1538

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Keywords: Comparative advantage; heterogeneous firms; labor market frictions; unemployment; trade liberalization;

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References

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Citations

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Cited by:
  1. Yu-Fu Chen & Michael Funke, 2009. "Booms, Recessions and Financial Turmoil: A Fresh Look at Investment Decisions under Cyclical Uncertainty," CESifo Working Paper Series 2759, CESifo Group Munich.
  2. Marco de Pinto & Jochen Michaelis, 2011. "International Trade and Unemployment - the Worker-Selection Effect," MAGKS Papers on Economics 201127, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  3. Engelmann, Sabine, 2011. "Trade liberalisation, technical change and skill-specific unemployment," IAB Discussion Paper 201119, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  4. Schmerer, Hans-Jörg, 2012. "Skill-biased labor market reforms and international competitiveness," IAB Discussion Paper 201224, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  5. Schmerer, Hans-Jörg, 2012. "FDI, skill-specific unemployment, and institutional spillover effects," Economics Discussion Papers 2012-2, Kiel Institute for the World Economy.
  6. Wolfgang Lechthaler & Mariya Mileva, 2013. "Two-Country Dynamic Model of Trade with Heterogeneous Firms and Comparative Advantage," WWWforEurope Working Papers series 12, WWWforEurope.
  7. Beker, Victor A., 2012. "A case study on trade liberalization: Argentina in the 1990s," Economics Discussion Papers 2012-3, Kiel Institute for the World Economy.

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