Discussion Paper Details

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Title: Trade and frictional unemployment in the global economy

Author(s): Céline Carrère, Anja Grujovic and Frédéric Robert-Nicoud

Publication Date: July 2015

Keyword(s): labor market frictions, trade and unemployment

Programme Area(s): International Trade and Regional Economics and Labour Economics

Abstract: We develop a multi-country, multi-sector trade model featuring risk-averse workers, labor market frictions, unemployment bene?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 e?ects of repealing NAFTA and raising bilateral tari?s 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.

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Bibliographic Reference

Carrère, C, Grujovic, A and Robert-Nicoud, F. 2015. 'Trade and frictional unemployment in the global economy'. London, Centre for Economic Policy Research.