Trade Liberalization, Wage, and Unemployment: Theory and Evidence from Chile

Takada, Sayaka; Murakami, Yoshimichi

Trade Liberalization, Wage, and Unemployment: Theory and Evidence from Chile

Sayaka Takada and Yoshimichi Murakami
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Sayaka Takada: Research Institute for Economics and Business Administration, Kobe University, JAPAN

No DP2025-04, Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University

Abstract: We develop a theoretical model that incorporates a fair wage model into a trade model with heterogeneous firms to analyze the effects of trade liberalization on wages and unemployment rates. By introducing a unique setting for the determinant of average wage, the model predicts that lower trade costs lead to higher average productivity, thereby raising wages and reducing unemployment rates. The empirical analysis employing different exposures to regional trade agreements across local labor markets in Chile from 2000 to 2006 finds that the reduction in input tariff rates expectedly increased local wages and decreased unemployment rates.

Keywords: Firm heterogeneity; Unemployment rate; Fair wage; Regional trade agreements; Local labor markets, Chile (search for similar items in EconPapers)
JEL-codes: F12 F16 F61 J31 J64 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2025-03
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Persistent link: https://EconPapers.repec.org/RePEc:kob:dpaper:dp2025-04

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