Unemployment in an Interdependent World

Gabriel Felbermayr, Mario Larch and Wolfgang Lechthaler

American Economic Journal: Economic Policy, 2013, vol. 5, issue 1, 262-301

Abstract: How do changes in labor market institutions, like more generous unemployment benefits in one country, affect labor market outcomes in other countries? We set up a two-country Armingtonian trade model with frictions on the goods and labor markets. Contrary to the literature, higher labor market frictions increase unemployment at home and abroad. The strength of the spillover depends on the relative size of countries and on trade costs. It is exacerbated when real wages are rigid. Using panel data for 20 rich OECD countries, and controlling for institutions as well as for business cycle comovement, we confirm our theoretical predictions. (JEL E24, F16, J64, J65)

JEL-codes: E24 F16 J64 J65 (search for similar items in EconPapers)
Date: 2013
Note: DOI: 10.1257/pol.5.1.262
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Citations: View citations in EconPapers (45)

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Related works:
Working Paper: Unemployment in an interdependent world (2013)
Working Paper: Unemployment in an Interdependent World (2009)
Working Paper: Unemployment in an Interdependent World (2009)
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