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Incorporating Unemployment into the GTAP Model

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  • Everett B. Peterson

Abstract

This paper documents the development of a labor module that incorporates job-search frictions, to introduce unemployment into the standard GTAP model. In this approach, unemployed individuals must search for a job opening and firms that want to hire must search for a worker to fill the job. To illustrate the potential value of a GTAP model with frictional unemployment, the impacts of a 25 percent increase in U.S. tariffs on metal products (e.g., ferrous and non-ferrous metals) are simulated. While employment of skilled and unskilled labor increases in the U.S. metals sector, employment of both types of labor declines in U.S. manufacturing and services sectors. These decreases in employment offset the increase in the metals sector, leading to a 0.8 percent increase in the unemployment of unskilled labor and a 1.5 percent in the unemployment of skilled labor. These increases would translate to a 0.1 percent point increase in the unemployment rate in the U.S. labor market. A potential barrier to wider use of a the GTAP model with unemployment is the availability of job separation or turnover rate data in regions other than the United States. In the example simulation, job turnover rates, and thus the initial levels of matched labor in the non-U.S. regions are assumed to be the same as for United States.

Suggested Citation

  • Everett B. Peterson, 2019. "Incorporating Unemployment into the GTAP Model," Journal of Global Economic Analysis, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, vol. 4(2), pages 67-107, December.
  • Handle: RePEc:gta:jnlgea:v:4:y:2019:i:2:p:67-107
    DOI: http://dx.doi.org/10.21642/JGEA.040202AF
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    References listed on IDEAS

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    Cited by:

    1. Yuan, Wen Jin & Antonio, Katherine & Butcher, Arona, 2022. "Incorporating Industry-Specific Wages and Unemployment into the GTAP Model: U.S.-EU Trade Liberalization Scenarios," Conference papers 333450, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    2. Jeff Ferry & Badri Narayanan Gopalakrishnan & Amanda Mayoral, 2022. "The impact of a U.S.–U.K. free trade agreement on workers: a CGE model with worker displacement," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 57(3), pages 121-138, July.

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    Keywords

    Frictional Unemployment; GTAP Mode;

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