Exports, Unemployment and the Welfare State

28 Pages Posted: 15 May 2007

See all articles by Eckhard Janeba

Eckhard Janeba

University of Mannheim - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 2 versions of this paper

Date Written: April 2007

Abstract

The paper analyzes the labor market effects of globalization when foreign market entry is costly and risky. With flexible labor markets, a fall in foreign market entry cost tends to generate more income inequality. By contrast, when workers cannot easily switch industries and wages are inflexible in the short run, globalization tends to increase unemployment. In this situation, government unemployment benefits reduce the wages that exporting firm's need to pay workers as risk compensation. Thus more firms within an industry and more industries become exporters. The above findings are consistent with popular views about the globalization effects in the U.S. and continental Europe. The results also suggest that the welfare state can simultaneously cause an increase in unemployment and exports.

Keywords: income inequality, unemployment, exporters, beachhead cost, globalization

JEL Classification: D40, F10, H20

Suggested Citation

Janeba, Eckhard, Exports, Unemployment and the Welfare State (April 2007). CESifo Working Paper Series No. 1977. Available at SSRN: https://ssrn.com/abstract=986543

Eckhard Janeba (Contact Author)

University of Mannheim - Department of Economics ( email )

L7, 3-5
D-68131 Mannheim
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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