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Calibrating the Employment Effects of Trade

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  • Matusz, Steven J

Abstract

The one-sector model of monopolistic competition and intraindustry trade is merged with the Shapiro-Stiglitz model of efficiency wages to show that introducing trade increases employment in both countries. The intuition is that even when employment is held constant, trade improves worker welfare via increased variety of available goods. The increase in worker welfare relaxes the efficiency wage constraint, permitting an increase in employment. The increase in employment magnifies the benefits of trade. The model is calibrated to US data to estimate the employment effects of eliminating all trade and eliminating trade with Mexico and Canada. Copyright 1998 by Blackwell Publishing Ltd.

Suggested Citation

  • Matusz, Steven J, 1998. "Calibrating the Employment Effects of Trade," Review of International Economics, Wiley Blackwell, vol. 6(4), pages 592-603, November.
  • Handle: RePEc:bla:reviec:v:6:y:1998:i:4:p:592-603
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    Cited by:

    1. Vesna Stavrevska, 2011. "The efficiency wages perspective to wage rigidity in the open economy: a survey," International Journal of Manpower, Emerald Group Publishing, vol. 32(3), pages 273-299, June.
    2. Kee, Hiau Looi & Hoon, Hian Teck, 2005. "Trade, capital accumulation and structural unemployment: an empirical study of the Singapore economy," Journal of Development Economics, Elsevier, vol. 77(1), pages 125-152, June.
    3. John Anyanwu, 2014. "Working Paper 201 - Does Intra-African Trade Reduce Youth Unemployment in Africa ?," Working Paper Series 2107, African Development Bank.
    4. Richard A. Brecher & Zhiqi Chen, 2010. "Unemployment of Skilled and Unskilled Labor in an Open Economy: International Trade, Migration, and Outsourcing," Review of International Economics, Wiley Blackwell, vol. 18(5), pages 990-1000, November.
    5. Carlos Casacuberta & Néstor Gandelman, 2012. "Protection, Openness, and Factor Adjustment: Evidence from the Manufacturing Sector in Uruguay," Economic Development and Cultural Change, University of Chicago Press, vol. 60(3), pages 597-629.
    6. John C. Anyanwu, 2014. "Does Intra-African Trade Reduce Youth Unemployment in Africa?," African Development Review, African Development Bank, vol. 26(2), pages 286-309, June.

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