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Trade and frictional unemployment in the global economy

Carrère, Céline, Grujovic, Anja and Robert-Nicoud, Frédéric (2015) Trade and frictional unemployment in the global economy. SERC discussion papers (SERCDP0189). Spatial Economics Research Centre, London, UK.

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Abstract

We develop a multi-country, multi-sector trade model with labor market frictions and equilibrium unemployment. Trade opening leads to a reduction in unemployment if it raises real wages and reallocates labor towards sectors with lower-than-average labor market frictions. We estimate sector-specific labor market frictions and trade elasticities using employment data from 25 OECD countries and worldwide trade data. We then quantify the potential unemployment and real wage effects of implementing the Transatlantic Trade and Investment Partnership (TTIP) or the Trans-Pacific Partnership (TPP), and of eliminating trade imbalances worldwide The unemployment and real wage effects work in conflicting directions for some countries under some trade regimes, such as the US under TTIP. We introduce a welfare criterion that accounts for both effects and splits such ties. Accordingly, US welfare is predicted to decrease under TTIP and increase under TPP.

Item Type: Monograph (Discussion Paper)
Official URL: http://www.spatialeconomics.ac.uk/
Additional Information: © 2015 The Authors
Divisions: Spatial Economics Research Centre
Centre for Economic Performance
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HD Industries. Land use. Labor
JEL classification: F - International Economics > F1 - Trade > F15 - Economic Integration
F - International Economics > F1 - Trade > F16 - Trade and Labor Market Interactions
F - International Economics > F1 - Trade > F17 - Trade Forecasting and Simulation
J - Labor and Demographic Economics > J6 - Mobility, Unemployment, and Vacancies > J64 - Unemployment: Models, Duration, Incidence, and Job Search
Sets: Research centres and groups > Spatial Economics Research Centre
Research centres and groups > Centre for Economic Performance (CEP)
Date Deposited: 11 May 2016 15:40
Last Modified: 30 Jan 2019 12:26
Funders: Economic and Social Research Council, Economic and Social Research Council
URI: http://eprints.lse.ac.uk/id/eprint/66490

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