Trade and Labor Market Outcomes

Elhanan Helpman, Oleg Itskhoki and Stephen Redding

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: This paper reviews a new framework for analyzing the interrelationship between inequality, unemployment, labor market frictions, and foreign trade. This framework emphasizes firm heterogeneity and search and matching frictions in labor markets. It implies that the opening of trade may raise inequality and unemployment, but always raises welfare. Unilateral reductions in labor market frictions increase a country's welfare, can raise or reduce its unemployment rate, yet always hurt the country's trade partner. Unemployment benefits can alleviate the distortions in a country's labor market in some cases but not in others, but they can never implement the constrained Pareto optimal allocation. We characterize the set of optimal policies, which require interventions in product and labor markets.

Keywords: Inequality; unemployment; trade; labour market policy (search for similar items in EconPapers)
JEL-codes: F12 F16 J64 (search for similar items in EconPapers)
Date: 2010-12
New Economics Papers: this item is included in nep-int and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://cep.lse.ac.uk/pubs/download/dp1028.pdf (application/pdf)

Related works:
Working Paper: Trade and Labor Market Outcomes (2011)
Working Paper: Trade and Labor Market Outcomes (2011)
Working Paper: Trade and Labor Market Outcomes (2010)
Working Paper: Trade and labor market outcomes (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:cep:cepdps:dp1028

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