Trade and Frictional Unemployment in the Global Economy.

Carrère, Céline; Grujovic, Anja; Robert-Nicoud, Frédéric

We develop a multicountry, multisector trade model featuring risk-averse workers, labor market frictions, unemployment benefits, and equilibrium unemployment. Trade opening leads to a reduction in unemployment when it simultaneously raises welfare and reallocates labor toward sectors with lower-than-average labor market frictions. We then estimate and calibrate the model using employment data from 31 OECD countries and worldwide trade data. Finally, we quantify the potential unemployment, real wage, and welfare effects of repealing NAFTA and raising bilateral tariffs between the United States and Mexico to 20%. This policy would increase unemployment by 2.4% in the United States and 48% in Mexico.

MEXICO; UNITED States; INTERNATIONAL competition; UNEMPLOYMENT; LABOR market; UNEMPLOYMENT insurance; REAL wages

Journal of the European Economic Association, 2020, Vol 18, Issue 6, p2869

1542-4766

Academic Journal

10.1093/jeea/jvz074