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Export and the Labor Market: a Dynamic Model with on-the-job Search

  • Suverato, Davide
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    This paper develops a two-sector, two-factor trade model with labor market frictions in which workers search for a job also when they are employed. On the job search (OJS) is a key ingredient to explain the response to trade liberalization of sectoral employment, unemployment and wage inequality. OJS generates wage dispersion and it leads to a reallocation of workers from less productive firms that pay lower wages to more productive ones. Following a trade liberalization the traditional selection effects are more severe than without OJS and the tradable sector experiences a loss of employment, while the opposite is true for the non tradable sector. Starting from autarky, the opening to trade has a positive effect on employment but it increases wage inequality. For an already open economy, a further increase of trade openness can, however, lead to an increase of unemployment. The dynamics of labor market variables is obtained in closed form. The model predicts overshooting at the time of implementation of a trade liberalization, then the paths of adjustment follow a stable transitional dynamics.

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    File URL: http://epub.ub.uni-muenchen.de/20919/1/Suverato2014_WP.pdf
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    Paper provided by University of Munich, Department of Economics in its series Discussion Papers in Economics with number 20919.

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    Date of creation: 27 May 2014
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    Handle: RePEc:lmu:muenec:20919
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    1. Elhanan Helpman & Oleg Itshoki & Stephen Redding, 2009. "Inequality and unemployment in a global economy," LSE Research Online Documents on Economics 25501, London School of Economics and Political Science, LSE Library.
    2. A. Kerem Coşar & Nezih Guner & James Tybout, 2010. "Firm Dynamics, Job Turnover, and Wage Distributions in an Open Economy," NBER Working Papers 16326, National Bureau of Economic Research, Inc.
    3. Eran Yashiv, 2000. "Hiring as Investment Behavior," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(3), pages 486-522, July.
    4. Pinelopi Koujianou Goldberg & Nina Pavcnik, 2007. "Distributional Effects of Globalization in Developing Countries," Journal of Economic Literature, American Economic Association, vol. 45(1), pages 39-82, March.
    5. Robert E. Hall & Alan B. Krueger, 2012. "Evidence on the Incidence of Wage Posting, Wage Bargaining, and On-the-Job Search," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(4), pages 56-67, October.
    6. Daniel Trefler, 2006. "The Long and Short of the Canada-U.S. Free Trade Agreement," STICERD - Economics of Industry Papers 41, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    7. Gabriel J Felbermayr & Julien Prat & Hans-Jörg Schmerer, 2009. "Trade and Unemployment: What do the data say?," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 310/2009, Department of Economics, University of Hohenheim, Germany.
    8. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2012. "The Empirics of Firm Heterogeneity and International Trade," Annual Review of Economics, Annual Reviews, vol. 4(1), pages 283-313, 07.
    9. Elhanan Helpman & Oleg Itskhoki & Marc-Andreas Muendler & Stephen Redding, 2012. "Trade and Inequality: From Theory to Estimation," CEP Discussion Papers dp1138, Centre for Economic Performance, LSE.
    10. 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.
    11. Melissa Bjelland & Bruce Fallick & John Haltiwanger & Erika McEntarfer, 2010. "Employer-to-Employer Flows in the United States: Estimates Using Linked Employer-Employee Data," Working Papers 10-26, Center for Economic Studies, U.S. Census Bureau.
    12. Melitz, Marc J & Redding, Stephen J., 2013. "Heterogeneous Firms and Trade," CEPR Discussion Papers 9317, C.E.P.R. Discussion Papers.
    13. Felbermayr, Gabriel & Prat, Julien & Schmerer, Hans-Jörg, 2008. "Globalization and Labor Market Outcomes: Wage Bargaining, Search Frictions, and Firm Heterogeneity," IZA Discussion Papers 3363, Institute for the Study of Labor (IZA).
    14. Dale T. Mortensen, 2009. "Wage Dispersion in the Search and Matching Model with Intra-Firm Bargaining," NBER Working Papers 15033, National Bureau of Economic Research, Inc.
    15. Dale T. Mortensen, 2010. "Wage Dispersion in the Search and Matching Model," American Economic Review, American Economic Association, vol. 100(2), pages 338-42, May.
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