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A Simple Theory of Trade and Unemployment in General Equilibrium

Author

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  • Ian King
  • Frank Stahler

Abstract

We develop an open economy general equilibrium model, with auction-based directed search unemployment, to study the interactions of trade and unemployment. The theory ascribes all outcomes purely to the fundamentals of technology and endowment. If countries differ by endowment, trade makes both the unemployment rate and the rental in the capital-(labor-) abundant country rise (decline), but does not lead to equalization. Furthermore, the expected wage is higher in the capital-abundant country. If countries differ by technology, trade increases (decreases) the unemployment rate in the country whose technology is relatively superior (inferior) for producing the capital-intensive good.

Suggested Citation

  • Ian King & Frank Stahler, 2010. "A Simple Theory of Trade and Unemployment in General Equilibrium," Department of Economics - Working Papers Series 1116, The University of Melbourne.
    • Handle: RePEc:mlb:wpaper:1116
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    File URL: http://fbe.unimelb.edu.au/__data/assets/pdf_file/0007/801079/1116.pdf
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    Citations

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    Cited by:

    1. Moritz Ritter, 2015. "Trade and inequality in a directed search model with firm and worker heterogeneity," Canadian Journal of Economics, Canadian Economics Association, vol. 48(5), pages 1902-1916, December.
    2. Ian King & Frank Stähler, 2014. "International trade and directed search unemployment in general equilibrium," Canadian Journal of Economics, Canadian Economics Association, vol. 47(2), pages 580-604, May.
    3. Ritter, Moritz, 2017. "Inequality And International Trade: The Role Of Skill-Biased Technology And Search Frictions," Macroeconomic Dynamics, Cambridge University Press, vol. 21(3), pages 624-643, April.
    4. Hartmut Egger & Michael Koch, 2013. "Trade and the Firm-Internal Allocation of Workers to Tasks," Working Papers 139, Bavarian Graduate Program in Economics (BGPE).

    More about this item

    Keywords

    Unemployment; international trade; general equilibrium;
    All these keywords.

    JEL classification:

    • 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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