Trade and the (dis)incentive to reform labor markets: The case of reform in the European UnionGeorge Alessandria () and Alain Delacroix () Journal of International Economics, 2008, vol. 75, issue 1, pages 151-166 Abstract: We study the relation between international trade and the gains to reform labor markets by removing firing restrictions. We find that trade linkages imply substantially smaller benefits to reform than those calculated in the closed economy general equilibrium model of Hopenhayn and Rogerson [Hopenhayn, Hugo, Rogerson, Richard, 1993. Job Turnover and policy evaluations: a general equilibrium analysis. Journal of Political Economy 101 (5), 915-938 October]. When economies trade, labor market policies in one country spill over to other countries through their effect on the terms of trade. A key finding in the open economy is that the share of the welfare gains from domestic labor market reform exported substantially exceeds the share of goods exported. Thus, with international trade, a country retains little to no benefit from unilaterally reforming its labor market. A coordinated elimination of firing taxes yields considerable benefits. We also find that the U.K. benefits from labor market reform by its continental trading partners. These insights provide some explanation for recent efforts toward labor market reform in the European Union. Date: 2008 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: http://EconPapers.repec.org/RePEc:eee:inecon:v:75:y:2008:i:1:p:151-166 Access Statistics for this article Journal of International Economics is edited by J. Eaton and C. M. Engel More articles in Journal of International Economics from Elsevier |
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