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Adverse Selection in Labor Markets and International Trade

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  • Clemenz, Gerhard

Abstract

This analysis considers trade between countries with labor-market distortions due to adverse selection. Comparative advantage is caused either by a better mix of high and low productivity workers or by the absence of adverse selection in one country. In either case, free trade may lead to a loss for the inferior country. A trading equilibrium is Pareto better than an equilibrium in a fully integrated economy with perfect factor mobility if both countries face adverse selection, otherwise the trading equilibrium is Pareto inferior. Subsidies for production of the imported good may improve the social utility of the 'inferior' country. Copyright 1995 by The editors of the Scandinavian Journal of Economics.

Suggested Citation

  • Clemenz, Gerhard, 1995. " Adverse Selection in Labor Markets and International Trade," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(1), pages 73-88, March.
  • Handle: RePEc:bla:scandj:v:97:y:1995:i:1:p:73-88
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    Cited by:

    1. Grossman, G.M., 1998. "Imperfect Labour Contracts and International Trade," Papers 205, Princeton, Woodrow Wilson School - Public and International Affairs.
    2. 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.
    3. Gene M. Grossman, 2004. "The Distribution of Talent and the Pattern and Consequences of International Trade," Journal of Political Economy, University of Chicago Press, vol. 112(1), pages 209-239, February.
    4. Gene Grossman, 2002. "The Distribution of Talent and the Pattern and Consequences of International Trade," CESifo Working Paper Series 745, CESifo Group Munich.

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