Endogenous labor market institutions in an open economy

Gabriel Felbermayr, Mario Larch and Wolfgang Lechthaler

International Review of Economics & Finance, 2012, vol. 23, issue C, 30-45

Abstract: The paper sets up a two-country asymmetric trade model with heterogeneous firms, search frictions and endogenous labor market institutions. Countries are linked by trade in goods and non-cooperatively set unemployment benefits to maximize national welfare. We show that more open and smaller economies have more generous unemployment benefit replacement rates as a larger fraction of the costs is borne by foreign trading partners. These results are in line with empirical stylized facts. Additionally, we find that the optimal level of unemployment benefits is independent from the level of unemployment benefits abroad and that non-cooperatively set unemployment rates are inefficiently high.

Keywords: Endogenous labor market institutions; Unemployment; International trade; Search frictions; Heterogeneous firms (search for similar items in EconPapers)
JEL-codes: F11 F12 F16 J64 L11 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (18)

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Related works:
Working Paper: Endogenous labor market institutions in an open economy (2012)
Working Paper: Endogenous Labor Market Insitutions in an Open Economy (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:23:y:2012:i:c:p:30-45

DOI: 10.1016/j.iref.2011.10.004

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