Job Creation, Job Destruction, and the International Division of Labor

19 Pages Posted: 29 Aug 2004

See all articles by Marion Jansen

Marion Jansen

International Trade Centre

Alessandro Turrini

European Commission; Centre for Economic Policy Research (CEPR)

Abstract

The authors incorporate equilibrium unemployment due to imperfect matching into a model of trade in intermediate inputs. Firms are assumed to be price-takers and their size is given by technology. Firms enter the market as long as expected profits cover the search cost they incur initially; jobs are endogenously destroyed by random shocks that affect firms' price-cost margins. Trade increases productivity in the final good and then demand for each intermediate input. Steady-state unemployment is reduced after trade integration because the rate of job destruction is reduced, which in turn induces an indirect positive effect on job creation. A more volatile environment faced by firms does not necessarily increase unemployment. However, the rate of job destruction unambiguously rises, and rises more under free trade.

Suggested Citation

Jansen, Marion and Turrini, Alessandro, Job Creation, Job Destruction, and the International Division of Labor. Review of International Economics, Vol. 12, No. 3, pp. 476-494, August 2004. Available at SSRN: https://ssrn.com/abstract=573075

Marion Jansen (Contact Author)

International Trade Centre ( email )

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Switzerland

Alessandro Turrini

European Commission ( email )

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B-1049 Brussels
Belgium
+32 2 299 5072 (Phone)
+32 2 299 3505 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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