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Effort, trade, and unemployment

Author

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  • Lutz Altenburg
  • Anke Brenken

Abstract

This paper incorporates equilibrium unemployment caused by efficiency wages into a monopolistic competition model of trade. Worker effort is treated as an endogenous variable that depends on the optimizing behaviour of firms and workers. Opening up trade induces firms to demand greater worker effort and to cut the size of their workforce. This counteracts the positive employment effect due to entry of firms. Circumstances are indicated in which the two effects just balance, leaving aggregate employment unchanged. Trade unambiguously increases worker effort, thereby enhancing within-firm productivity.

Suggested Citation

  • Lutz Altenburg & Anke Brenken, 2008. "Effort, trade, and unemployment," Canadian Journal of Economics, Canadian Economics Association, vol. 41(3), pages 864-893, August.
  • Handle: RePEc:cje:issued:v:41:y:2008:i:3:p:864-893
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    Cited by:

    1. Kamei, Keita, 2014. "International Trade, Unemployment, and Firm Owners in a General Equilibrium with Oligopoly," MPRA Paper 59388, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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