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Endogenous Labor Market Insitutions in an Open Economy

  • Gabriel Felbermayr

    ()

  • Mario Larch
  • Lechthaler Wolfgang

The paper sets up a two-country asymmetric trade model with heterogeneous firms,search frictions and endogenous labor market institutions. Countries are linked by tradein goods and non-cooperatively set unemployment benefits to maximize national welfare.We show that more open and smaller economies have more generous unemploymentbenefit replacement rates as a larger fraction of the costs is borne by foreign tradingpartners. These results are in line with empirical stylized facts. Additionally, we findthat the optimal level of unemployment benefits is independent from the level of unemploymentbenefits abroad and that non-cooperatively set unemployment rates areinefficiently high.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-Ifo_Working_Papers/wp-ifo-2011/IfoWorkingPaper-108.pdf
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Paper provided by Ifo Institute - Leibniz Institute for Economic Research at the University of Munich in its series Ifo Working Paper Series with number Ifo Working Paper No. 108.

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Date of creation: 2011
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Handle: RePEc:ces:ifowps:_108
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  17. Felbermayr, Gabriel & Jung, Benjamin & Larch, Mario, 2013. "Optimal tariffs, retaliation, and the welfare loss from tariff wars in the Melitz model," Journal of International Economics, Elsevier, vol. 89(1), pages 13-25.
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  36. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-73, May.
  37. Hartmut Egger & Udo Kreickemeier, 2009. "Firm Heterogeneity And The Labor Market Effects Of Trade Liberalization," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(1), pages 187-216, 02.
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  39. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
  40. Davidson, Carl & Martin, Lawrence & Matusz, Steven, 1988. "The Structure of Simple General Equilibrium Models with Frictional Unemployment," Journal of Political Economy, University of Chicago Press, vol. 96(6), pages 1267-93, December.
  41. Lars A. Stole & Jeffrey Zwiebel, 1996. "Intra-firm Bargaining under Non-binding Contracts," Review of Economic Studies, Oxford University Press, vol. 63(3), pages 375-410.
  42. Gros, Daniel, 1987. "A note on the optimal tariff, retaliation and the welfare loss from tariff wars in a framework with intra-industry trade," Journal of International Economics, Elsevier, vol. 23(3-4), pages 357-367, November.
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  44. Marc Piopiunik, 2011. "Intergenerational Transmission of Education and Mediating Channels: Evidence from Compulsory Schooling Reforms in Germany," Ifo Working Paper Series Ifo Working Paper No. 107, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
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