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Trade and Labor Market Outcomes

Author

Listed:
  • Helpman, Elhanan
  • Redding, Stephen
  • Itskhoki, Oleg

Abstract

This paper reviews a new framework for analyzing the interrelationship between inequality, unemployment, labor market frictions, and foreign trade. This framework emphasizes firm heterogeneity and search and matching frictions in labor markets. It implies that the opening of trade may raise inequality and unemployment, but always raises welfare. Unilateral reductions in labor market frictions increase a country's welfare, can raise or reduce its unemployment rate, yet always hurt the country's trade partner. Unemployment benefits can alleviate the distortions in a country's labor market in some cases but not in others, but they can never implement the constrained Pareto optimal allocation. We characterize the set of optimal policies, which require interventions in product and labor markets.

Suggested Citation

  • Helpman, Elhanan & Redding, Stephen & Itskhoki, Oleg, 2011. "Trade and Labor Market Outcomes," CEPR Discussion Papers 8191, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:8191
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    More about this item

    Keywords

    Inequality; Labor market policy; Trade; Unemployment;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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