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Trade and Labor Market Outcomes

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  • Elhanan Helpman
  • Oleg Itskhoki
  • Stephen Redding

Abstract

This paper reviews a new framework for analyzing the interrelationship between inequality, unemployment, labor market frictions, and foreign trade. This framework emphasizes firm heterogeneity and search and matching frictions in labor markets. It implies that the opening of trade may raise inequality and unemployment, but always raises welfare. Unilateral reductions in labor market frictions increase a country's welfare, can raise or reduce its unemployment rate, yet always hurt the country's trade partner. Unemployment benefits can alleviate the distortions in a country's labor market in some cases but not in others, but they can never implement the constrained Pareto optimal allocation. We characterize the set of optimal policies, which require interventions in product and labor markets.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16662.

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Date of creation: Jan 2011
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Publication status: published as E.Helpman, O.Itskhoki, S. Redding, Trade and labor market outcomes, in Daron Acemoglu, Manuel Arellano and Eddie Dekel (eds.), Advances in Economics and Econometrics: Theory and Application. Tenth World Congress , Volume II: Applied Economics (Cambridge: Cambridge University Press), 2013.
Handle: RePEc:nbr:nberwo:16662

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  2. 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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Cited by:
  1. Juhn, Chinhui & Ujhelyi, Gergely & Villegas-Sanchez, Carolina, 2014. "Men, women, and machines: How trade impacts gender inequality," Journal of Development Economics, Elsevier, vol. 106(C), pages 179-193.
  2. Zierahn, Ulrich, 2012. "Monocentric cities, endogenous agglomeration, and unemployment disparities," HWWI Research Papers 130, Hamburg Institute of International Economics (HWWI).
  3. Cacciatore, Matteo, 2014. "International trade and macroeconomic dynamics with labor market frictions," Journal of International Economics, Elsevier, vol. 93(1), pages 17-30.
  4. Ulrich Zierahn, 2011. "Agglomeration, Congestion, and Regional Unemployment Disparities," ERSA conference papers ersa11p303, European Regional Science Association.
  5. Pedro Martins & Luca David Opromolla, 2011. "Why Ex(Im)porters Pay More: Evidence from Matched Firm-Worker Panels," Working Papers w201123, Banco de Portugal, Economics and Research Department.
  6. Swati Dhingra & John Morrow, 2012. "The Impact of Integration on Productivity and Welfare Distortions Under Monopolistic Competition," FIW Working Paper series 088, FIW.
  7. Pflüger, Michael P. & Russek, Stephan, 2010. "Trade and Industrial Policies with Heterogeneous Firms: The Role of Country Asymmetries," IZA Discussion Papers 5387, Institute for the Study of Labor (IZA).

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