Job Creation, Job Destruction, and the International Division of Labor
The authors incorporate equilibrium unemployment due to imperfect matching into a model of trade in intermediate inputs. Firms are assumed to be price-takers and their size is given by technology. Firms enter the market as long as expected profits cover the search cost they incur initially; jobs are endogenously destroyed by random shocks that affect firms' price-cost margins. Trade increases productivity in the final good and then demand for each intermediate input. Steady-state unemployment is reduced after trade integration because the rate of job destruction is reduced, which in turn induces an indirect positive effect on job creation. A more volatile environment faced by firms does not necessarily increase unemployment. However, the rate of job destruction unambiguously rises, and rises more under free trade. Copyright Blackwell Publishing Ltd 2004.
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Volume (Year): 12 (2004)
Issue (Month): 3 (08)
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