American Economic Journal:
Economic Policy
ISSN 1945-7731 (Print) | ISSN 1945-774X (Online)
Unemployment in an Interdependent World
American Economic Journal: Economic Policy
vol. 5,
no. 1, February 2013
(pp. 262–301)
Abstract
How do changes in labor market institutions, like more generous unemployment benefits in one country, affect labor market outcomes in other countries? We set up a two-country Armingtonian trade model with frictions on the goods and labor markets. Contrary to the literature, higher labor market frictions increase unemployment at home and abroad. The strength of the spillover depends on the relative size of countries and on trade costs. It is exacerbated when real wages are rigid. Using panel data for 20 rich OECD countries, and controlling for institutions as well as for business cycle comovement, we confirm our theoretical predictions. (JEL E24, F16, J64, J65)Citation
Felbermayr, Gabriel J., Mario Larch, and Wolfgang Lechthaler. 2013. "Unemployment in an Interdependent World." American Economic Journal: Economic Policy, 5 (1): 262–301. DOI: 10.1257/pol.5.1.262Additional Materials
JEL Classification
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital
- F16 Trade and Labor Market Interactions
- J64 Unemployment: Models, Duration, Incidence, and Job Search
- J65 Unemployment Insurance; Severance Pay; Plant Closings
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