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Exports, Unemployment and the Welfare State

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  • Eckhard Janeba

Abstract

The paper analyzes the labor market effects of globalization when foreign market entry is costly and risky. With flexible labor markets, a fall in foreign market entry cost tends to generate more income inequality. By contrast, when workers cannot easily switch industries and wages are inflexible in the short run, globalization tends to increase unemployment. In this situation, government unemployment benefits reduce the wages that exporting firm’s need to pay workers as risk compensation. Thus more firms within an industry and more industries become exporters. The above findings are consistent with popular views about the globalization effects in the U.S. and continental Europe. The results also suggest that the welfare state can simultaneously cause an increase in unemployment and exports.

Suggested Citation

  • Eckhard Janeba, 2007. "Exports, Unemployment and the Welfare State," CESifo Working Paper Series 1977, CESifo.
    • Handle: RePEc:ces:ceswps:_1977
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    Cited by:

    1. Amegashie, J. Atsu & Ouattara, Bazoumanna & Strobl, Eric, 2007. "Moral Hazard and the Composition of Transfers: Theory with an Application to Foreign Aid," MPRA Paper 3158, University Library of Munich, Germany, revised 06 May 2007.
    2. Eckhard Janeba, 2009. "Exports, unemployment, and the welfare state," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 42(3), pages 930-955, August.

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    More about this item

    Keywords

    income inequality; unemployment; exporters; beachhead cost; globalization;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • F1 - International Economics - - Trade
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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