Discussion Paper Details

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Title: Job Creation, Job Destruction, and the International Division of Labour

Author(s): Marion Jansen and Alessandro Antonio Turrini

Publication Date: June 2000

Keyword(s): Increasing Returns, International Trade, Job Creation, Job Destruction and Unemployment

Programme Area(s): International Trade and Regional Economics

Abstract: We incorporate equilibrium unemployment due to imperfect matching into a model of trade in intermediate inputs (Ethier (1982)). Firms are assumed to be price takers and their size is given by technology. Firms enter the market as long as expected profits cover the search cost they incur initially. Trade increases productivity in the final good and then demand for each intermediate input. Steady state unemployment is reduced after trade integration because more vacancies are opened. When the rate of job destruction is made endogenous, international trade reduces the equilibrium rate of job destruction, and this induces an indirect positive effect on job creation. We also show that the more volatile environment faced by firms that is often associated with deeper trade integration is unlikely, per se, to increase unemployment.

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Bibliographic Reference

Jansen, M and Turrini, A. 2000. 'Job Creation, Job Destruction, and the International Division of Labour'. London, Centre for Economic Policy Research.