Globalization and labor market outcomes: Wage bargaining, search frictions, and firm heterogeneity

Gabriel Felbermayr, Julien Prat and Hans-Jörg Schmerer

Munich Reprints in Economics from University of Munich, Department of Economics

Abstract: We introduce search unemployment into Melitz’s trade model. Firms’ monopoly power on product markets leads to strategic wage bargaining. Solving for the symmetric equilibrium we show that the selection effect of trade influences labor market outcomes. Trade liberalization lowers unemployment and raises real wages as long as it improves average productivity. We show that this condition is likely to be met by a reduction in variable trade costs or by entry of new trading countries. Calibrating the model shows that the long-run impact of trade openness on the rate of unemployment is negative and quantitatively significant.

Date: 2011
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Citations: View citations in EconPapers (237)

Published in Journal of Economic Theory 1 146(2011): pp. 39-73

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Related works:
Journal Article: Globalization and labor market outcomes: Wage bargaining, search frictions, and firm heterogeneity (2011)
Working Paper: Globalization and Labor Market Outcomes: Wage Bargaining, Search Frictions, and Firm Heterogeneity (2008)
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