Trade and Labor Market Outcomes

Elhanan Helpman, Stephen Redding and Oleg Itskhoki

No 8191, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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; Labor market policy; Trade; Unemployment (search for similar items in EconPapers)
JEL-codes: F12 F16 J64 (search for similar items in EconPapers)
Date: 2011-01
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Citations: View citations in EconPapers (31)

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Related works:
Working Paper: Trade and Labor Market Outcomes (2011)
Working Paper: Trade and Labor Market Outcomes (2010)
Working Paper: Trade and Labor Market Outcomes (2010)
Working Paper: Trade and labor market outcomes (2010)
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