Effects of Globalization on Educational Choice and Unemployment under Search Friction

Trade liberalization increases the import of foreign goods fosters the penetration of foreign firms into the local markets and makes local markets more competitive. To survive the severer competition, local firms must improve the qualities of production factor,goods and employ more highly skilled workers more. An increase in the demand for skilled workers encourages workers to pursue higher education. Despite that the world economy has witnessed the trend of freer international transactions in decades, However, the recent trend of the employment of highly educated workers is seems stagnant in many countries, in particular, in developed countries globally. Although trade liberalization enhances the demand for skilled workers, it may does not necessarily contribute to increasing an improvement of their employment. I analyze how trade liberalization affects the local employment of both skilled workers, and unskilled workers, occupational choices by workers, and the wage inequality between skilled and unskilled workers. If When firms a firm start to production enters the market, they it must has to employ one unit of skilled worker labor to develop its own variety of the differentiated good in advance of actual production and some unskilled workers. The abilities of Each skilled workers has are heterogeneous ability, so that the ex post productivities of firms are become different heterogeneous ex post. The unskilled workers, whose abilities are homogeneous, are used for the production of the good. However, due to search friction, matches between firms and to unskilled and skilled workers (either skilled or unskilled) are not always successful. With this knowledge, knowing all this, workers choose make their educational choices: and either to remain to be unskilled workers or to get educated to be skilled workers learn skills. Trade liberalization changes affects the wage rates of unskilled and skilled workers and the successful probability of successful matching, which may encourage unskilled workers to learn skill but increase the number of the skilled workers after trade liberalization. Therefore, the unemployment rate of the skilled workers may increase after globalization.