IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/10692.html
   My bibliography  Save this paper

Trade and frictional unemployment in the global economy

Author

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

Abstract

We develop a multi-country, multi-sector trade model featuring risk-averse workers, labor market frictions, unemployment beneï¬ ts, and equilibrium unemployment. Trade opening leads to a reduction in unemployment when it simultaneously raises welfare and reallocates labor towards sectors with lower-than-average labor market frictions. We then estimate and calibrate the model using employment data from 31 OECD countries and worldwide trade data. Finally, we quantify the potential unemployment, real wage, and welfare effects of repealing NAFTA and raising bilateral tariffs between the US and Mexico to 20 percent. This policy would increase unemployment by 2.4 percent in the us and 48 percent in Mexico.

Suggested Citation

  • Robert-Nicoud, Frédéric & Carrère, Céline & Grujovic, Anja, 2019. "Trade and frictional unemployment in the global economy," CEPR Discussion Papers 10692, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:10692
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP10692
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Keith Head & Thierry Mayer, 2013. "What separates us? Sources of resistance to globalization," Canadian Journal of Economics, Canadian Economics Association, vol. 46(4), pages 1196-1231, November.
    2. Gabriel Felbermayr & Benedikt Heid & Mario Larch & Erdal Yalcin, 2015. "Macroeconomic potentials of transatlantic free trade: a high resolution perspective for Europe and the world," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 30(83), pages 491-537.
    3. Benedikt Heid & Mario Larch, 2012. "International Trade and Unemployment: A Quantitative Framework," CESifo Working Paper Series 4013, CESifo.
    4. Eric A. Verhoogen, 2008. "Trade, Quality Upgrading, and Wage Inequality in the Mexican Manufacturing Sector," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(2), pages 489-530.
    5. repec:hal:spmain:info:hdl:2441/f6h8764enu2lskk9p2m9j4i07 is not listed on IDEAS
    6. Regis Barnichon & Andrew Figura, 2015. "Labor Market Heterogeneity and the Aggregate Matching Function," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(4), pages 222-249, October.
    7. Peter Egger & Joseph Francois & Miriam Manchin & Douglas Nelson, 2015. "Non-tariff barriers, integration and the transatlantic economy," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 30(83), pages 539-584.
    8. Alejandro Cuñat & Marc J. Melitz, 2012. "Volatility, Labor Market Flexibility, And The Pattern Of Comparative Advantage," Journal of the European Economic Association, European Economic Association, vol. 10(2), pages 225-254, April.
    9. Christopher A. Pissarides & Barbara Petrongolo, 2001. "Looking into the Black Box: A Survey of the Matching Function," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 390-431, June.
    10. Chris Edmond & Virgiliu Midrigan & Daniel Yi Xu, 2015. "Competition, Markups, and the Gains from International Trade," American Economic Review, American Economic Association, vol. 105(10), pages 3183-3221, October.
    11. Simonovska, Ina & Waugh, Michael E., 2014. "The elasticity of trade: Estimates and evidence," Journal of International Economics, Elsevier, vol. 92(1), pages 34-50.
    12. Céline CARRERE & Marco FUGAZZA & Marcelo OLARREAGA & Frédéric ROBERT-NICOUD, 2014. "Trade in Unemployment," Working Papers P101, FERDI.
    13. Hartmut Egger & Udo Kreickemeier, 2017. "Fairness, Trade, and Inequality," World Scientific Book Chapters, in: International Trade and Labor Markets Welfare, Inequality and Unemployment, chapter 12, pages 339-380, World Scientific Publishing Co. Pte. Ltd..
    14. Elhanan Helpman & Oleg Itskhoki, 2010. "Labour Market Rigidities, Trade and Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(3), pages 1100-1137.
    15. Jonathan Eaton & Robert Dekle & Samuel Kortum, 2007. "Unbalanced Trade," American Economic Review, American Economic Association, vol. 97(2), pages 351-355, May.
    16. Young, H Peyton, 1990. "Progressive Taxation and Equal Sacrifice," American Economic Review, American Economic Association, vol. 80(1), pages 253-266, March.
    17. Marc J. Melitz & Stephen J. Redding, 2015. "New Trade Models, New Welfare Implications," American Economic Review, American Economic Association, vol. 105(3), pages 1105-1146, March.
    18. Krugman, Paul R, 1993. "What Do Undergrads Need to Know about Trade?," American Economic Review, American Economic Association, vol. 83(2), pages 23-26, May.
    19. Andrew Atkeson & Ariel Tomás Burstein, 2010. "Innovation, Firm Dynamics, and International Trade," Journal of Political Economy, University of Chicago Press, vol. 118(3), pages 433-484, June.
    20. Nunn, Nathan & Trefler, Daniel, 2014. "Domestic Institutions as a Source of Comparative Advantage," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 263-315, Elsevier.
    21. Felbermayr, Gabriel & Prat, Julien & Schmerer, Hans-Jörg, 2011. "Globalization and labor market outcomes: Wage bargaining, search frictions, and firm heterogeneity," Journal of Economic Theory, Elsevier, vol. 146(1), pages 39-73, January.
    22. Elhanan Helpman & Oleg Itskhoki & Stephen Redding, 2010. "Inequality and Unemployment in a Global Economy," Econometrica, Econometric Society, vol. 78(4), pages 1239-1283, July.
    23. Dani Rodrik, 1998. "Why Do More Open Economies Have Bigger Governments?," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 997-1032, October.
    24. Keith Head & Thierry Mayer & Mathias Thoenig, 2014. "Welfare and Trade without Pareto," American Economic Review, American Economic Association, vol. 104(5), pages 310-316, May.
    25. Lionel Fontagné & Julien Gourdon & Sébastien Jean, 2013. "Transatlantic Trade: Whither Partnership, Which Economic Consequences?," CEPII Policy Brief 2013-01, CEPII research center.
    26. Matusz, Steven J, 1986. "Implicit Contracts, Unemployment and International Trade," Economic Journal, Royal Economic Society, vol. 96(382), pages 307-322, June.
    27. Joseph Francois & Miriam Manchin & Hanna Norberg & Olga Pindyuk & Patrick Tomberger, 2013. "Reducing Transatlantic Barriers to Trade and Investment: An Economic Assessment," IIDE Discussion Papers 20130401, Institue for International and Development Economics.
    28. Anne-Célia Disdier & Keith Head, 2008. "The Puzzling Persistence of the Distance Effect on Bilateral Trade," The Review of Economics and Statistics, MIT Press, vol. 90(1), pages 37-48, February.
    29. 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 1267-1293, December.
    30. Davis, Donald R. & Harrigan, James, 2011. "Good jobs, bad jobs, and trade liberalization," Journal of International Economics, Elsevier, vol. 84(1), pages 26-36, May.
    31. repec:hal:spmain:info:hdl:2441/443fbihfmj8h58a4ceedn30ogb is not listed on IDEAS
    32. Chor, Davin, 2010. "Unpacking sources of comparative advantage: A quantitative approach," Journal of International Economics, Elsevier, vol. 82(2), pages 152-167, November.
    33. Pravin Krishna & Jennifer P. Poole & Mine Zeynep Senses, 2012. "Trade, Labor Market Frictions, and Residual Wage Inequality across Worker Groups," American Economic Review, American Economic Association, vol. 102(3), pages 417-423, May.
    34. Amartya Sen, 1976. "Real National Income," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 43(1), pages 19-39.
    35. repec:hal:spmain:info:hdl:2441/5fjm1f1p0v93k9png4qo8ltnrf is not listed on IDEAS
    36. Ossa, Ralph, 2015. "Why trade matters after all," Journal of International Economics, Elsevier, vol. 97(2), pages 266-277.
    37. Dornbusch, Rudiger & Fischer, Stanley & Samuelson, Paul A, 1977. "Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods," American Economic Review, American Economic Association, vol. 67(5), pages 823-839, December.
    38. Federico Esposito & Costas Arkolakis & Rodrigo Adao, 2017. "Endogenous Labor Supply and the Gains from International Trade," 2017 Meeting Papers 1044, Society for Economic Dynamics.
    39. Pablo D. Fajgelbaum, 2013. "Labor Market Frictions, Firm Growth, and International Trade," NBER Working Papers 19492, National Bureau of Economic Research, Inc.
    40. Ariel Burstein & Jonathan Vogel, 2017. "International Trade, Technology, and the Skill Premium," Journal of Political Economy, University of Chicago Press, vol. 125(5), pages 1356-1412.
    41. Simon Galle & Andrés Rodríguez-Clare & Moises Yi, 2023. "Slicing the Pie: Quantifying the Aggregate and Distributional Effects of Trade," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 90(1), pages 331-375.
    42. Arnaud Costinot, 2009. "Jobs, Jobs, Jobs: A "New" Perspective on Protectionism," Journal of the European Economic Association, MIT Press, vol. 7(5), pages 1011-1041, September.
    43. Udo Kreickemeier & Douglas Nelson, 2017. "Fair Wages, Unemployment, and Technological Change in a Global Economy," World Scientific Book Chapters, in: International Trade and Labor Markets Welfare, Inequality and Unemployment, chapter 8, pages 205-235, World Scientific Publishing Co. Pte. Ltd..
    44. Davidson, Carl & Martin, Lawrence & Matusz, Steven, 1999. "Trade and search generated unemployment," Journal of International Economics, Elsevier, vol. 48(2), pages 271-299, August.
    45. Alvarez, Fernando & Lucas, Robert Jr., 2007. "General equilibrium analysis of the Eaton-Kortum model of international trade," Journal of Monetary Economics, Elsevier, vol. 54(6), pages 1726-1768, September.
    46. Costas Arkolakis & Arnaud Costinot & Andres Rodriguez-Clare, 2012. "New Trade Models, Same Old Gains?," American Economic Review, American Economic Association, vol. 102(1), pages 94-130, February.
    47. Gopinath, G. & Helpman, . & Rogoff, K. (ed.), 2014. "Handbook of International Economics," Handbook of International Economics, Elsevier, edition 1, volume 4, number 4.
    48. Davis, Donald R, 1998. "Does European Unemployment Prop Up American Wages? National Labor Markets and Global Trade," American Economic Review, American Economic Association, vol. 88(3), pages 478-494, June.
    49. Rahel Aichele & Gabriel Felbermayr & Inga Heiland & Gabriel J. Felbermayr, 2014. "Going Deep: The Trade and Welfare Effects of TTIP," CESifo Working Paper Series 5150, CESifo.
    50. Daron Acemoglu & Pol Antràs & Elhanan Helpman, 2007. "Contracts and Technology Adoption," American Economic Review, American Economic Association, vol. 97(3), pages 916-943, June.
    51. Erhan Artuç & Shubham Chaudhuri & John McLaren, 2010. "Trade Shocks and Labor Adjustment: A Structural Empirical Approach," American Economic Review, American Economic Association, vol. 100(3), pages 1008-1045, June.
    52. Xiaobo Lü & Kenneth Scheve & Matthew J. Slaughter, 2012. "Inequity Aversion and the International Distribution of Trade Protection," American Journal of Political Science, John Wiley & Sons, vol. 56(3), pages 638-654, July.
    53. Richard A. Brecher, 1974. "Minimum Wage Rates and the Pure Theory of International Trade," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 88(1), pages 98-116.
    54. Arnaud Costinot & Dave Donaldson & Ivana Komunjer, 2012. "What Goods Do Countries Trade? A Quantitative Exploration of Ricardo's Ideas," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(2), pages 581-608.
    55. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
    56. Petri, Peter A., 2012. "The Trans-Pacific Partnership and Asia-Pacific Integration," 2012: New Rules of Trade? December 2012, San Diego, California 143184, International Agricultural Trade Research Consortium.
    57. repec:hal:wpspec:info:hdl:2441/f6h8764enu2lskk9p2m9j4i07 is not listed on IDEAS
    58. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Robert-Nicoud, Frédéric & Olarreaga, Marcelo & Carrère, Céline & Fugazza, Marco, 2016. "On the heterogeneous effect of trade on unemployment," CEPR Discussion Papers 11540, C.E.P.R. Discussion Papers.
    2. Rafael Dix-Carneiro & João Paulo Pessoa & Ricardo Reyes-Heroles & Sharon Traiberman, 2023. "Globalization, Trade Imbalances, and Labor Market Adjustment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 138(2), pages 1109-1171.
    3. Antràs, Pol & de Gortari, Alonso & Itskhoki, Oleg, 2017. "Globalization, inequality and welfare," Journal of International Economics, Elsevier, vol. 108(C), pages 387-412.
    4. Kohl, Miriam & Richter, Philipp M., 2023. "Unilateral tax policy in the open economy," Journal of International Economics, Elsevier, vol. 145(C).
    5. Olarreaga, Marcelo & Ugarte, Cristian, 2020. "Can export promotion reduce unemployment?," CEPR Discussion Papers 15049, C.E.P.R. Discussion Papers.
    6. Oliver Krebs, 2018. "Shocking Germany – A spatial analysis of German regional labor markets," Working Papers 183, Bavarian Graduate Program in Economics (BGPE).
    7. Gabriel Felbermayr, 2016. "Economic Analysis of TTIP," ifo Working Paper Series 215, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    8. Povilas Lastauskas & Julius Stakėnas, 2020. "Labour market institutions in open economy: Sectoral reallocations, aggregate adjustments, and spillovers," Review of International Economics, Wiley Blackwell, vol. 28(3), pages 814-845, August.
    9. Baier, Scott L. & Yotov, Yoto V. & Zylkin, Thomas, 2019. "On the widely differing effects of free trade agreements: Lessons from twenty years of trade integration," Journal of International Economics, Elsevier, vol. 116(C), pages 206-226.
    10. Eddy Bekkers & Hugo Rojas-Romagosa, 2018. "Non-tariff Measure Estimations in Different Impact Assessments," RSCAS Working Papers 2018/40, European University Institute.
    11. Aichele Rahel & Felbermayr Gabriel J. & Heiland Inga, 2016. "TTIP and Intra-European Trade: Boon or Bane?," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 236(6), pages 639-664, December.
    12. Gyasi, Genevieve, 2020. "The Impact of Trade Agreement Policy on Employment," MPRA Paper 101307, University Library of Munich, Germany.
    13. Gabriel Felbermayr & Gabriel J. Felbermayr, 2017. "Ricardo und die neue quantitative Außenhandelstheorie," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 70(18), pages 23-24, September.
    14. Carrère, Céline & Fugazza, Marco & Olarreaga, Marcelo & Robert-Nicoud, Frédéric, 2020. "Comparative advantage and equilibrium unemployment," European Economic Review, Elsevier, vol. 127(C).
    15. Simon Galle & Andrés Rodríguez-Clare & Moises Yi, 2023. "Slicing the Pie: Quantifying the Aggregate and Distributional Effects of Trade," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 90(1), pages 331-375.
    16. Rodolfo G. Campos & Jacopo Timini, 2022. "Unequal trade, unequal gains: the heterogeneous impact of MERCOSUR," Applied Economics, Taylor & Francis Journals, vol. 54(49), pages 5655-5669, October.
    17. Vandenberg, Paul, 2017. "Can Trade Help Achieve the Employment Targets of the Sustainable Development Goals?," ADBI Working Papers 650, Asian Development Bank Institute.
    18. Nong, Huifu, 2021. "Have cross-category spillovers of economic policy uncertainty changed during the US–China trade war?," Journal of Asian Economics, Elsevier, vol. 74(C).
    19. 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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:gnv:wpaper:unige:77631 is not listed on IDEAS
    2. Heid, Benedikt & Larch, Mario, 2016. "Gravity with unemployment," Journal of International Economics, Elsevier, vol. 101(C), pages 70-85.
    3. Carrère, Céline & Fugazza, Marco & Olarreaga, Marcelo & Robert-Nicoud, Frédéric, 2020. "Comparative advantage and equilibrium unemployment," European Economic Review, Elsevier, vol. 127(C).
    4. Elhanan Helpman & Oleg Itskhoki, 2010. "Labour Market Rigidities, Trade and Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(3), pages 1100-1137.
    5. Melitz, Marc J. & Redding, Stephen J., 2014. "Heterogeneous Firms and Trade," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 1-54, Elsevier.
    6. Nunn, Nathan & Trefler, Daniel, 2014. "Domestic Institutions as a Source of Comparative Advantage," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 263-315, Elsevier.
    7. Nigai, Sergey, 2023. "Selection effects, inequality, and aggregate gains from trade," Journal of International Economics, Elsevier, vol. 142(C).
    8. Gabriel J. Felbermayr & Mario Larch & Wolfgang Lechthaler, 2013. "Unemployment in an Interdependent World," American Economic Journal: Economic Policy, American Economic Association, vol. 5(1), pages 262-301, February.
    9. David Hummels & Jakob R. Munch & Chong Xiang, 2018. "Offshoring and Labor Markets," Journal of Economic Literature, American Economic Association, vol. 56(3), pages 981-1028, September.
    10. Elhanan Helpman & Oleg Itskhoki & Stephen Redding, 2010. "Inequality and Unemployment in a Global Economy," Econometrica, Econometric Society, vol. 78(4), pages 1239-1283, July.
    11. Aichele Rahel & Felbermayr Gabriel J. & Heiland Inga, 2016. "TTIP and Intra-European Trade: Boon or Bane?," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 236(6), pages 639-664, December.
    12. Dinopoulos, Elias & Unel, Bulent, 2015. "Entrepreneurs, jobs, and trade," European Economic Review, Elsevier, vol. 79(C), pages 93-112.
    13. Tang, Heiwai, 2012. "Labor market institutions, firm-specific skills, and trade patterns," Journal of International Economics, Elsevier, vol. 87(2), pages 337-351.
    14. Muendler, Marc-Andreas, 2017. "Trade, technology, and prosperity: An account of evidence from a labor-market perspective," WTO Staff Working Papers ERSD-2017-15, World Trade Organization (WTO), Economic Research and Statistics Division.
    15. Egger, Hartmut & Egger, Peter & Kreickemeier, Udo, 2013. "Trade, wages, and profits," European Economic Review, Elsevier, vol. 64(C), pages 332-350.
    16. Robert-Nicoud, Frédéric & Olarreaga, Marcelo & Carrère, Céline & Fugazza, Marco, 2016. "On the heterogeneous effect of trade on unemployment," CEPR Discussion Papers 11540, C.E.P.R. Discussion Papers.
    17. Carl Davidson & Steven J. Matusz, 2010. "Our Motivation," Introductory Chapters, in: International Trade with Equilibrium Unemployment, Princeton University Press.
    18. Inga Heiland, 2017. "Five Essays on International Trade, Factor Flows and the Gains from Globalization," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 74.
    19. Lee, Eunhee, 2020. "Trade, inequality, and the endogenous sorting ofheterogeneous workers," Journal of International Economics, Elsevier, vol. 125(C).
    20. Edwin L.-C. Lai & Haichao Fan & Han Steffan Qi, 2020. "Global gains from reduction in trade costs," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 70(1), pages 313-345, July.
    21. Céline CARRERE & Marco FUGAZZA & Marcelo OLARREAGA & Frédéric ROBERT-NICOUD, 2014. "Trade in Unemployment," Working Papers P101, FERDI.

    More about this item

    Keywords

    Labor market frictions; Unemployment; Trade;
    All these keywords.

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:10692. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://www.cepr.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.