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Comparative Advantage and Skill-Specific Unemployment


  • Mario Larch
  • Wolfgang Lechthaler


We introduce unemployment and endogenous selection of workers into different skill-classes in a trade model with two sectors and heterogeneous firms. This allows us to study the distributional consequences and the skill-specific unemployment effects of trade liberalization. We show that the gains from trade will be distributed very unequally. While unskilled workers loose in terms of real wages and employment levels in the skilled labor intensive sector, skilled workers loose in terms of real wages and unemployment levels in the unskilled labor intensive sector. However, the inequality of workers between sectors is much larger for skilled labor than for unskilled labor. On average, unemployment among unskilled workers increases when a skill-abundant country opens up to trade.

Suggested Citation

  • Mario Larch & Wolfgang Lechthaler, 2009. "Comparative Advantage and Skill-Specific Unemployment," CESifo Working Paper Series 2754, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_2754

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    Cited by:

    1. Lechthaler, Wolfgang & Mileva, Mariya, 2013. "Trade liberalization and wage inequality: New insights from a dynamic trade model with heterogeneous firms and comparative advantage," Kiel Working Papers 1886, Kiel Institute for the World Economy (IfW).
    2. Yu-Fu Chen & Michael Funke, 2010. "Booms, Recessions And Financial Turmoil: A Fresh Look At Investment Decisions Under Cyclical Uncertainty," Scottish Journal of Political Economy, Scottish Economic Society, vol. 57(s1), pages 290-317, July.
    3. Beker, Victor A., 2012. "A case study on trade liberalization: Argentina in the 1990s," Economics Discussion Papers 2012-3, Kiel Institute for the World Economy (IfW).
    4. Schmerer, Hans-Jörg, 2012. "Skill-biased labor market reforms and international competitiveness," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 6, pages 1-39.
    5. Engelmann, Sabine, 2011. "Trade liberalisation, technical change and skill-specific unemployment," IAB Discussion Paper 201119, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    6. Lechthaler, Wolfgang & Mileva, Mariya, 2014. "Smoothing the adjustment to trade liberalization," Kiel Working Papers 1948, Kiel Institute for the World Economy (IfW).
    7. Marco Pinto & Jochen Michaelis, 2014. "International Trade and Unemployment—the Worker-selection Effect," Review of International Economics, Wiley Blackwell, vol. 22(2), pages 226-252, May.
    8. Stella Capuano & Andreas Hauptmann & Jans-Jörg Schmerer, 2014. "Trade and Unions: Can Exporters Benefit from Collective Bargaining?," CESifo Working Paper Series 5096, CESifo Group Munich.
    9. Wolfgang Lechthaler & Mariya Mileva, 2013. "Two-Country Dynamic Model of Trade with Heterogeneous Firms and Comparative Advantage," WWWforEurope Working Papers series 12, WWWforEurope.

    More about this item


    comparative advantage; heterogeneous firms; labor market frictions; unemployment; trade liberalization;

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms


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