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Unemployment of Skilled and Unskilled Labor in an Open Economy: International Trade, Migration, and Outsourcing

  • Richard A. Brecher
  • Zhiqi Chen

We show how international trade, migration, and outsourcing affect unemployment of skilled and unskilled labor, in a framework that integrates the Heckscher-Ohlin model of trade with the Shapiro-Stiglitz model of unemployment. Our approach allows us to analyze changes in not only aggregate unemployment, but also the distribution of unemployment between skilled and unskilled labor. As the analysis demonstrates, the unemployment rates of these two types of labor often move in opposite directions, thereby dampening the change in aggregate unemployment. Results depend on the source of comparative advantage, based on international differences in (for example) unemployment insurance or production technology. Copyright � 2010 Blackwell Publishing Ltd.

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Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 18 (2010)
Issue (Month): 5 (November)
Pages: 990-1000

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Handle: RePEc:bla:reviec:v:18:y:2010:i:5:p:990-1000
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  1. Brecher, Richard A & Choudhri, Ehsan U, 1982. "Immiserizing Investment from Abroad: The Singer-Prebisch Thesis Reconsidered," The Quarterly Journal of Economics, MIT Press, vol. 97(1), pages 181-90, February.
  2. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  3. Wood Júnior, Thomaz, 1995. "Workers," RAE - Revista de Administração de Empresas, FGV-EAESP Escola de Administração de Empresas de São Paulo (Brazil), vol. 35(2), January.
  4. Davis, Donald R, 1998. "Does European Unemployment Prop Up American Wages? National Labor Markets and Global Trade," American Economic Review, American Economic Association, vol. 88(3), pages 478-94, June.
  5. Kimball, Miles S, 1994. "Labor-Market Dynamics When Unemployment is a Worker Discipline Device," American Economic Review, American Economic Association, vol. 84(4), pages 1045-59, September.
  6. Devashish Mitra & Priya Ranjan, 2007. "Offshoring and Unemployment," NBER Working Papers 13149, National Bureau of Economic Research, Inc.
  7. Brecher, Richard A. & Choudhri, Ehsan U., 1987. "International migration versus foreign investment in the presence of unemployment," Journal of International Economics, Elsevier, vol. 23(3-4), pages 329-342, November.
  8. Richard A. Brecher & Zhiqi Chen & Ehsan Choudhri, 2007. "Optimal Taxation in a Dynamic Model of Shirking and Unemployment: Shapiro and Stiglitz Meet Chamley," Carleton Economic Papers 07-07, Carleton University, Department of Economics, revised Aug 2010.
  9. R.A. Brecher & Z. Chen & E.U. Choudhri, 2000. "Unemployment and Growth in the Long Run: An Efficiency-Wage Model with Optimal Savings," Carleton Economic Papers 00-01, Carleton University, Department of Economics, revised Sep 2002.
  10. Brecher, Richard A., 1992. "An efficiency-wage model with explicit monitoring : Unemployment and welfare in an open economy," Journal of International Economics, Elsevier, vol. 32(1-2), pages 179-191, February.
  11. Nickell, Stephen & Bell, Brian, 1995. "The Collapse in Demand for the Unskilled and Unemployment across the OECD," Oxford Review of Economic Policy, Oxford University Press, vol. 11(1), pages 40-62, Spring.
  12. Brecher, Richard A, 1974. "Minimum Wage Rates and the Pure Theory of International Trade," The Quarterly Journal of Economics, MIT Press, vol. 88(1), pages 98-116, February.
  13. Krugman, Paul R, 1993. "What Do Undergrads Need to Know about Trade?," American Economic Review, American Economic Association, vol. 83(2), pages 23-26, May.
  14. Davidson, Carl & Matusz, Steven J. & Shevchenko, Andrei, 2008. "Outsourcing Peter To Pay Paul: High-Skill Expectations And Low-Skill Wages With Imperfect Labor Markets," Macroeconomic Dynamics, Cambridge University Press, vol. 12(04), pages 463-479, September.
  15. Copeland, Brian R., 1989. "Efficiency wages in a Ricardian model of international trade," Journal of International Economics, Elsevier, vol. 27(3-4), pages 221-244, November.
  16. Richard A. Breche & Zhiqi Chen & Ehsan U. Choudhri, 2002. "Unemployment and Growth in the Long Run: An Efficiency-Wage Model with Optimal Savings," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(3), pages 875-894, August.
  17. Mussa, Michael, 1993. "Making the Practical Case for Freer Trade," American Economic Review, American Economic Association, vol. 83(2), pages 372-76, May.
  18. Jagdish Bhagwati & Arvind Panagariya & T. N. Srinivasan, 2004. "The Muddles over Outsourcing," International Trade 0408004, EconWPA.
  19. Adrian Wood, 1995. "How Trade Hurt Unskilled Workers," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 57-80, Summer.
  20. Ronald W. Jones, 1965. "The Structure of Simple General Equilibrium Models," Journal of Political Economy, University of Chicago Press, vol. 73, pages 557.
  21. Brecher, Richard A., 1974. "Optimal commercial policy for a minimum-wage economy," Journal of International Economics, Elsevier, vol. 4(2), pages 139-149, May.
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