DP2472 Job Creation, Job Destruction, and the International Division of Labour

Author(s): Marion Jansen, Alessandro Antonio Turrini
Publication Date: June 2000
Keyword(s): Increasing Returns, International Trade, Job Creation, Job Destruction, Unemployment
JEL(s): F16, J64
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=2472

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.