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International Trade and Labor Markets

Theory, Evidence, and Policy Implications

Carl Davidson og Steven J. Matusz

W.E. Upjohn Institute 2004 145 s. ISBN 0-88099-274-3
Bogomtale fra forlaget.

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During the past two decades, the economic fortunes of less-skilled workers in the United States and Europe have sunk at a time when there has been a boom in international trade. This has sparked considerable debate among those interested in trade policy and labor markets over the impact of trade on labor-market outcomes, and in particular, the impact of globalization on low-skill, low-wage workers.

Davidson and Matusz tackle these questions by extending the traditional analysis of international trade to allow for labor markets characterized by workers whose labor-market experiences are punctuated by spells of involuntary unemployment. They demonstrate that such extensions are easily accomplished and that they provide valuable new insights that withstand empirical scrutiny. And perhaps most importantly, argue Davidson and Matusz, such models offer the appropriate venue in which to carry out policy analysis aimed at determining the best way to compensate those who suffer economic loss as a result of changing trade patterns.

Two views on the impacts of trade liberalization on labor markets prevail. Free trade proponents argue that by expanding our export markets we make it easier for the unemployed to return to work sooner. Those opposing freer trade worry about workers who lose their jobs as imports flow into the United States, or they see the wages of the low-skilled workers eroded as employers have difficulty competing with foreign competitors using workers paid third-world wages. In addition, say the authors, academic economists seem unconcerned about the jobs created or destroyed by changes in trade policy. In fact, debate about trade policy among economists usually ignores the impact of trade on employment. Instead, they typically argue that fully flexible wages and other factor prices allow the economy to maintain full employment of all resources, including labor.

In response, Davidson and Matusz develop simple yet compelling models that allow for documented differences in labor markets across countries in order to investigate the impact of trade and trade policies on society's underclass. These are based on several micro-based models of unemployment that have emerged over the past 30 years, and they allow the authors to account for differing degrees of labor-market flexibility. The models allow examination of the impact on the poor of trade's effects on job opportunities and on the distribution of income when unemployment is present.

The same models are then used to study the relative merits of policies such as trade adjustment assistance, wage subsidies for dislocated workers, job training subsidies, and other policies aimed at helping workers displaced by changes in the pattern of trade.