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Exports, unemployment and the welfare state

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  • Janeba, Eckhard

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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Bibliographic Info

Paper provided by University of Goettingen, Department of Economics in its series Center for European, Governance and Economic Development Research Discussion Papers with number 60.

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Date of creation: 2007
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Handle: RePEc:zbw:cegedp:60

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Postal: Platz der Göttinger Sieben 3, 37073 Göttingen
Web page: http://www.cege.wiso.uni-goettingen.de/
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Keywords: income inequality; unemployment; exporters; beachhead costs; globalization;

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  1. Richard Baldwin, 1988. "Hysteresis In Import Prices: The Beachhead Effect," NBER Working Papers 2545, National Bureau of Economic Research, Inc.
  2. Francesca Fabbri & Jonathan E. Haskel & Matthew J. Slaughter, 2003. "Does Nationality Of Ownership Matter For Labor Demands?," Journal of the European Economic Association, MIT Press, MIT Press, vol. 1(2-3), pages 698-707, 04/05.
  3. Peter K. Schott, 2001. "One Size Fits All? Heckscher-Ohlin Specialization in Global Production," NBER Working Papers 8244, National Bureau of Economic Research, Inc.
  4. Dani Rodrik, 1998. "Why Do More Open Economies Have Bigger Governments?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 106(5), pages 997-1032, October.
  5. Strotmann, Harald & Döpke, Jörg & Buch, Claudia M., 2006. "Does trade openness increase firm-level volatility?," Discussion Paper Series 1: Economic Studies 2006,40, Deutsche Bundesbank, Research Centre.
  6. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2003. "Plants and Productivity in International Trade," American Economic Review, American Economic Association, American Economic Association, vol. 93(4), pages 1268-1290, September.
  7. Chi-Chur Chao & Eden S. H. Yu, 1997. "Trade Liberalization in Oligopolistic Competition with Unemployment: A General Equilibrium Analysis," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 30(2), pages 479-96, May.
  8. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  9. Kreickemeier, Udo & Nelson, Douglas, 2006. "Fair wages, unemployment and technological change in a global economy," Journal of International Economics, Elsevier, Elsevier, vol. 70(2), pages 451-469, December.
  10. Yeaple, Stephen Ross, 2005. "A simple model of firm heterogeneity, international trade, and wages," Journal of International Economics, Elsevier, Elsevier, vol. 65(1), pages 1-20, January.
  11. 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.
  12. Matusz, Steven J, 1986. "Implicit Contracts, Unemployment and International Trade," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 96(382), pages 307-22, June.
  13. Davis, Donald R, 1998. "Does European Unemployment Prop Up American Wages? National Labor Markets and Global Trade," American Economic Review, American Economic Association, American Economic Association, vol. 88(3), pages 478-94, June.
  14. Matusz, Steven J, 1996. "International Trade, the Division of Labor, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(1), pages 71-84, February.
  15. Hans-Werner Sinn, 2006. "The Pathological Export Boom and the Bazaar Effect: How to Solve the German Puzzle," The World Economy, Wiley Blackwell, vol. 29(9), pages 1157-1175, 09.
  16. 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, American Economic Association, vol. 87(4), pages 545-64, September.
  17. Azariadis, Costas, 1975. "Implicit Contracts and Underemployment Equilibria," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 83(6), pages 1183-1202, December.
  18. Fernandez, Raquel, 1992. "Terms-of-Trade Uncertainty, Incomplete Markets and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(4), pages 881-94, November.
  19. Brecher, Richard A, 1974. "Minimum Wage Rates and the Pure Theory of International Trade," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 88(1), pages 98-116, February.
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Cited by:
  1. J. Atsu Amegashie & Bazoumana Ouattara & Eric Strobl, 2007. "Moral Hazard and the Composition of Transfers: Theory with an Application to Foreign Aid," Working Papers, University of Guelph, Department of Economics and Finance 0702, University of Guelph, Department of Economics and Finance.

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