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Trade Liberalization, Wage, and Unemployment: Theory and Evidence from Chile

Author

Listed:
  • Sayaka Takada

    (Research Institute for Economics and Business Administration, Kobe University, JAPAN)

  • Yoshimichi Murakami

    (Research Institute for Economics and Business Administration, Kobe University, JAPAN)

Abstract

We develop a theoretical model that incorporates a fair wage model into a trade model with heterogeneous firms to analyze the effects of trade liberalization on wages and unemployment rates. By introducing a unique setting for the determinant of average wage, the model predicts that lower trade costs lead to higher average productivity, thereby raising wages and reducing unemployment rates. The empirical analysis employing different exposures to regional trade agreements across local labor markets in Chile from 2000 to 2006 finds that the reduction in input tariff rates expectedly increased local wages and decreased unemployment rates.

Suggested Citation

  • Sayaka Takada & Yoshimichi Murakami, 2025. "Trade Liberalization, Wage, and Unemployment: Theory and Evidence from Chile," Discussion Paper Series DP2025-04, Research Institute for Economics & Business Administration, Kobe University.
    • Handle: RePEc:kob:dpaper:dp2025-04
    as

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    More about this item

    Keywords

    Firm heterogeneity; Unemployment rate; Fair wage; Regional trade agreements; Local labor markets; Chile;
    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
    • F61 - International Economics - - Economic Impacts of Globalization - - - Microeconomic Impacts
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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