Trade and Frictional Unemployment in the Global Economy

74 Pages Posted: 8 Jul 2015 Last revised: 2 Dec 2019

See all articles by Céline Carrère

Céline Carrère

University of Geneva

Anja Grujovic

University of Geneva

Frederic Robert-Nicoud

University of Geneva - Department of Political Economics; Centre for Economic Policy Research (CEPR)

Date Written: July 2015

Abstract

We develop a multi-country, multi-sector trade model featuring risk-averse workers, labor market frictions, unemployment bene?ts, and equilibrium unemployment. Trade opening leads to a reduction in unemployment when it simultaneously raises welfare and reallocates labor towards 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 e?ects of repealing NAFTA and raising bilateral tari?s between the US and Mexico to 20 percent. This policy would increase unemployment by 2.4 percent in the us and 48 percent in Mexico.

Keywords: labor market frictions, trade, unemployment

JEL Classification: F15, F16, F17

Suggested Citation

Carrère, Céline and Grujovic, Anja and Robert-Nicoud, Frederic L., Trade and Frictional Unemployment in the Global Economy (July 2015). CEPR Discussion Paper No. DP10692, Available at SSRN: https://ssrn.com/abstract=2627644

Céline Carrère (Contact Author)

University of Geneva ( email )

102 Bd Carl-Vogt
Genève, CH - 1205
Switzerland

Anja Grujovic

University of Geneva ( email )

102 Bd Carl-Vogt
Genève, CH - 1205
Switzerland

Frederic L. Robert-Nicoud

University of Geneva - Department of Political Economics ( email )

40, boulevard du Pont-d'Arve
Geneva 4, CH-1211
Switzerland
+41 22 379 8272 (Phone)
+41 22 379 8293 (Fax)

HOME PAGE: http://www.unige.ch/ses/ecopo/staff/robert/home.html

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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