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The impact of intraindustry trade on the natural rate of unemployment in two simple models

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  • Hian Hoon

Abstract

This paper builds in two popular versions of the theory of equilibrium unemployment into a world economy engaged purely in intraindustry trade of differentiated products. We show that free trade through increasing the range of varieties available for consumption and expanding economies of scale leads to a lowering of the equilibrium rates of unemployment in all participating countries. Thus, we demonstrate channels through which international trade alleviates the problem of high unemployment in each country engaged in pure intraindustry trade. Copyright Kluwer Academic Publishers 1994

Suggested Citation

  • Hian Hoon, 1994. "The impact of intraindustry trade on the natural rate of unemployment in two simple models," Open Economies Review, Springer, vol. 5(1), pages 29-46, March.
    • Handle: RePEc:kap:openec:v:5:y:1994:i:1:p:29-46
    DOI: 10.1007/BF01000743
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    References listed on IDEAS

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    1. Richard Brecher, 1989. "An Efficiency-Wage Model of Unemployment in an Open Economy," Carleton Economic Papers 89-06, Carleton University, Department of Economics, revised Feb 1992.
    2. Kimball, Miles S, 1994. "Labor-Market Dynamics When Unemployment is a Worker Discipline Device," American Economic Review, American Economic Association, vol. 84(4), pages 1045-1059, September.
    3. Salop, Steven C, 1979. "A Model of the Natural Rate of Unemployment," American Economic Review, American Economic Association, vol. 69(1), pages 117-125, March.
    4. Bulow, Jeremy I & Summers, Lawrence H, 1986. "A Theory of Dual Labor Markets with Application to Industrial Policy,Discrimination, and Keynesian Unemployment," Journal of Labor Economics, University of Chicago Press, vol. 4(3), pages 376-414, July.
    5. Hoon, Hian Teck & Phelps, Edmund S, 1992. "Macroeconomic Shocks in a Dynamized Model of the Natural Rate of Unemployment," American Economic Review, American Economic Association, vol. 82(4), pages 889-900, September.
    6. Phelps, Edmund, 2015. "Seven Schools of Macroeconomic Thought," OUP Catalogue, Oxford University Press, number 9780198743903.
    7. Edmund S. Phelps, 1968. "Money-Wage Dynamics and Labor-Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 76, pages 678-678.
    8. 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.
    9. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-444, June.
    10. Hoon, Hian Teck, 1991. "Comparative advantage and the equilibrium rate of unemployment," Economics Letters, Elsevier, vol. 37(3), pages 299-304, November.
    11. 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.
    12. Phelps, Edmund S, 1992. "A Review of Unemployment," Journal of Economic Literature, American Economic Association, vol. 30(3), pages 1476-1490, September.
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    Cited by:

    1. 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.
    2. Kamei, Keita, 2014. "International Trade, Unemployment, and Firm Owners in a General Equilibrium with Oligopoly," MPRA Paper 59388, University Library of Munich, Germany.
    3. Lutz Altenburg & Anke Brenken, 2008. "Effort, trade, and unemployment," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 41(3), pages 864-893, August.

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