DP10692 Trade and frictional unemployment in the global economy
Author(s): | Céline Carrère, Anja Grujovic, Frédéric Robert-Nicoud |
Publication Date: | July 2015 |
Date Revised: | November 2019 |
Keyword(s): | labor market frictions, trade, unemployment |
JEL(s): | F15, F16, F17 |
Programme Areas: | Labour Economics, International Trade and Regional Economics |
Link to this Page: | cepr.org/active/publications/discussion_papers/dp.php?dpno=10692 |
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.