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Trade and frictional unemployment in the global economy

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  • Carrère, Céline
  • Grujovic, Anja
  • Robert-Nicoud, Frédéric

Abstract

We develop a multi-country, multi-sector trade model with labor market frictions and equilibrium unemployment. Trade opening leads to a reduction in unemployment if it raises real wages and reallocates labor towards sectors with lower-than-average labor market frictions. We estimate sector-specific labor market frictions and trade elasticities using employment data from 25 OECD countries and worldwide trade data. We then quantify the potential unemployment and real wage effects of implementing the Transatlantic Trade and Investment Partnership (TTIP) or the Trans-Pacific Partnership (TPP), and of eliminating trade imbalances worldwide The unemployment and real wage effects work in conflicting directions for some countries under some trade regimes, such as the US under TTIP. We introduce a welfare criterion that accounts for both effects and splits such ties. Accordingly, US welfare is predicted to decrease under TTIP and increase under TPP.

Suggested Citation

  • Carrère, Céline & Grujovic, Anja & Robert-Nicoud, Frédéric, 2015. "Trade and frictional unemployment in the global economy," LSE Research Online Documents on Economics 66490, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:66490
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    Cited by:

    1. Carrère, Céline & Fugazza, Marco & Olarreaga, Marcelo & Robert-Nicoud, Frédéric, 2016. "On the heterogeneous effect of trade on unemployment," CEPR Discussion Papers 11540, C.E.P.R. Discussion Papers.
    2. Antràs, Pol & de Gortari, Alonso & Itskhoki, Oleg, 2017. "Globalization, inequality and welfare," Journal of International Economics, Elsevier, vol. 108(C), pages 387-412.
    3. Vandenberg, Paul, 2017. "Can Trade Help Achieve the Employment Targets of the Sustainable Development Goals?," ADBI Working Papers 650, Asian Development Bank Institute.
    4. Gabriel Felbermayr, 2016. "Economic Analysis of TTIP," ifo Working Paper Series 215, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    5. Simon Galle & Andrés Rodríguez-Clare & Moises Yi, 2017. "Slicing the Pie: Quantifying the Aggregate and Distributional Effects of Trade," NBER Working Papers 23737, National Bureau of Economic Research, Inc.
    6. Jovanović, Miroslav, 2016. "Emerging Mega International Blocs: Limits and Prospects," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 69(4), pages 271-316.

    More about this item

    Keywords

    labor market frictions; unemployment; trade;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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