Working Paper: CEPR ID: DP2472
Authors: Marion Jansen; Alessandro Turrini
Abstract: We incorporate equilibrium unemployment due to imperfect matching into a model of trade in intermediate inputs (Ethier (1982)). 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. Trade increases productivity in the final good and then demand for each intermediate input. Steady state unemployment is reduced after trade integration because more vacancies are opened. When the rate of job destruction is made endogenous, international trade reduces the equilibrium rate of job destruction, and this induces an indirect positive effect on job creation. We also show that the more volatile environment faced by firms that is often associated with deeper trade integration is unlikely, per se, to increase unemployment.
Keywords: job creation; job destruction; unemployment; international trade; increasing returns
JEL Codes: F16; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increased trade (F19) | greater job creation (J68) |
| increased trade (F19) | reduced equilibrium rate of job destruction (J63) |
| greater job creation (J68) | decrease in unemployment (J68) |
| increased trade (F19) | indirectly fosters job creation via reduced job destruction (J68) |