KRISTIAN BEHRENS, Catholic University of Louvain - Center for Operations Research and Econometrics (CORE), Université de Bourgogne - LATEC
Email: behrens@core.ucl.ac.be
GIORDANO MION, Catholic University of Louvain - Center for Operations Research and Econometrics (CORE)
Email: mion@core.ucl.ac.be
YASUSADA MURATA, Nihon University - Advanced Research Institute for the Sciences and Humanities
Email: murata@arish.nihon-u.ac.jp
JENS SUEDEKUM, affiliation not provided to SSRN

We develop a new general equilibrium model of trade with heterogeneous firms, variable demand elasticities and endogenously determined wages. Trade integration favors wage convergence, intensifies competition, and forces the least efficient firms to leave the market, thereby affecting aggregate productivity. Since wage and productivity responses are endogenous, our model is well suited to study the impacts of trade integration on aggregate productivity and factor prices. Using Canada-U.S. interregional trade data, we first estimate a system of theory-based gravity equations under the general equilibrium constraints generated by the model. Doing so allows us to measure 'border effects' and to decompose them into a 'pure' border effect, relative and absolute wage effects, and a selection effect. Using the estimated parameter values, we then quantify the impacts of removing the Canada-U.S. border on wages, productivity, markups, the share of exporters, the mass of varieties produced and consumed, and welfare. We finally provide a similar quantification with respect to regional population changes.

DAVID BLANCHFLOWER, Bank of England
Email: david.blanchflower@bankofengland.co.uk
HELEN LAWTON, affiliation not provided to SSRN

We examine the impact on the UK of the influx of workers from Eastern Europe. We look at the characteristics of the workers who have come to the UK since 2004. We also use data from a number of Eurobarometers 2004-2007 as well as the 2005 Work Orientation module International Social Survey Programme to look at the attitudes of residents of these countries. East Europeans report that they are unhappy with their lives and the country they live in, are dissatisfied with their jobs and would find difficulties in finding a new job or keeping their existing job. Relatively high proportions express a desire to move abroad. Expectations for the future for both their economy and their personal situations remain low but have improved since 2004. There has been some deterioration in the availability of jobs in the UK economy as the economy moves into recession. The UK is an attractive place to live and work for these workers. We argue that rather than dissipate, flows to the UK could remain strong well into the future.

LEO KAAS, University of Konstanz, Institute for the Study of Labor (IZA)
Email: leo.kaas@uni-konstanz.de

This paper analyzes an urn-ball matching model in which workers decide how intensively they sample job openings and apply at a stochastic number of suitable vacancies. Equilibrium is not constrained efficient; entry is excessive and search intensity can be too high or too low. Moreover, an inefficient discouraged-worker effect among homogenous workers emerges under adverse labor market conditions. Unlike existing coordination-friction economies with fixed search intensity, the model can account for the empirical relation between the job-finding rate and the vacancy-unemployment ratio, provided that search costs are small and that search intensity is sufficiently procyclical.

RICHARD ROGERSON, Arizona State University - Economics Department, National Bureau of Economic Research (NBER)
Email: richard.rogerson@asu.edu

This paper uses a simple model of labor supply extended to allow for home production to understand the extent to which differences in taxes can account for differences in time allocations between the US and Europe. Once home production is included, the elasticity of substitution between consumption and leisure is almost irrelevant in determining the response of market hours to higher taxes. But to account for observed differences in leisure and time spent in home production, one requires a large elasticity of substitution between consumption and leisure, and a small elasticity of substitution between time and goods in home production.