A Behavioral Model of Unemployment, Sociotropic Concerns, and the Political Economy of Trade Policy

23 Pages Posted: 7 Feb 2012

See all articles by Carl Davidson

Carl Davidson

Michigan State University - Department of Economics

Steven J. Matusz

Michigan State University - Department of Economics

Douglas Nelson

University of Nottingham - Leverhulme Centre for Research on Globalisation and Economic Policy (GEP)

Date Written: March 2012

Abstract

We present a behavioral model in which agents are concerned about the scarring effects from unemployment for themselves and others and explore the manner in which unemployment matters for trade policy. We derive three policy implications: the government has an incentive to increase employment in sectors characterized by “good jobs,” where the good job/bad job characterization depends on an industry's job creation and destruction rates; the government has an incentive to pursue this policy in a gradual fashion by channeling new and unemployed workers into the appropriate sector; and opposition to trade liberalization can be reduced by welfare state policies.

Suggested Citation

Davidson, Carl and Matusz, Steven J. and Nelson, Douglas, A Behavioral Model of Unemployment, Sociotropic Concerns, and the Political Economy of Trade Policy (March 2012). Available at SSRN: https://ssrn.com/abstract=2000483 or http://dx.doi.org/10.1111/j.1468-0343.2011.00393.x

Carl Davidson

Michigan State University - Department of Economics ( email )

25 C Marshall-Adams Hall
East Lansing, MI 48824
United States
517-355-7756 (Phone)
517-432-1068 (Fax)

HOME PAGE: http://www.msu.edu/~ec/faculty/davidson/davidson.html

Steven J. Matusz (Contact Author)

Michigan State University - Department of Economics ( email )

Department of Economics
486 West Circle Drive
East Lansing, MI 48824
United States
517-353-8719 (Phone)
517-432-1068 (Fax)

HOME PAGE: http://econ.msu.edu/faculty/matusz/index.php

Douglas Nelson

University of Nottingham - Leverhulme Centre for Research on Globalisation and Economic Policy (GEP) ( email )

University Park
Nottingham, NG7 2RD
United Kingdom

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