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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.
Item Type: | Journal article |
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Faculties: | Economics Economics > Chairs > CESifo-Professorship for International Trade |
Subjects: | 300 Social sciences > 330 Economics |
JEL Classification: | E24, F16, J64, J65 |
Language: | English |
Item ID: | 20597 |
Date Deposited: | 15. Apr 2014, 09:00 |
Last Modified: | 04. Nov 2020, 13:01 |
Available Versions of this Item
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Unemployment in an interdependent world. (deposited 15. Apr 2014, 09:00)
- Unemployment in an interdependent world. (deposited 15. Apr 2014, 09:00) [Currently Displayed]