Calibrating the Employment Effects of Trade

Steven Matusz

Review of International Economics, 1998, vol. 6, issue 4, 592-603

Abstract: The one-sector model of monopolistic competition and intraindustry trade is merged with the Shapiro-Stiglitz model of efficiency wages to show that introducing trade increases employment in both countries. The intuition is that even when employment is held constant, trade improves worker welfare via increased variety of available goods. The increase in worker welfare relaxes the efficiency wage constraint, permitting an increase in employment. The increase in employment magnifies the benefits of trade. The model is calibrated to US data to estimate the employment effects of eliminating all trade and eliminating trade with Mexico and Canada. Copyright 1998 by Blackwell Publishing Ltd.

Date: 1998
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