Trade, Technology and Unemployment: The Role of Supply Side Adjustment

Theory and Methods Research Paper No. 2006/12

28 Pages Posted: 19 May 2006  

Udo Kreickemeier

University of Tuebingen; CESifo (Center for Economic Studies and Ifo Institute)

Abstract

This paper analyses trade in an asymmetric 2x2x2 world, where the two countries ("Europe" and "America") differ in their preferences towards wage inequality. Fair wage considerations compress wage differentials in both countries, leading to involuntary unemployment of unskilled workers in equilibrium. European workers are more averse to wage inequality, and Europe is characterised by lower wage differentials as well as higher unemployment. Allowing for endogenous skill formation in both countries, the effects of a globalisation shock - modelled as the entry of newly industrializing countries into the trading world - and a global technology shock on skill premia and employment levels are derived. In contrast to a model with exogenous factor supplies, global shocks have an effect on international wage and unemployment differentials.

Keywords: Globalisation, Unemployment, Fair Wages, Human Capital

JEL Classification: F11, F15, F16

Suggested Citation

Kreickemeier, Udo, Trade, Technology and Unemployment: The Role of Supply Side Adjustment. Available at SSRN: https://ssrn.com/abstract=903283 or http://dx.doi.org/10.2139/ssrn.903283

Udo Kreickemeier (Contact Author)

University of Tuebingen ( email )

DE-72074 Tubingen
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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