Title

Market Size, Comparative Advantage and the Natural Rate of Unemployment

Publication Type

Journal Article

Publication Date

1996

Abstract

We apply the Phelps-Stiglitz-Salop natural rate of unemployment model to study the impact of free trade on equilibrium unemployment. We identify two effects (with implications for equilibrium unemployment) that are at work when an economy opens up to trade: a scale effect; and a relative price effect. The enlargement of markets through trade expands the economy-wide demand for workers in certain jobs involving firm-specific training while relative price changes may either expand or contract the economy-wide demand for such workers. Juxtaposed against a pseudo-labour supply locus, the new equilibrium unemployment rate is determined.

Discipline

Economics

Research Areas

Applied Microeconomics

Publication

Journal of International Trade and Economic Development

Volume

5

Issue

1

First Page

79

Last Page

98

ISSN

0963-8199

Identifier

10.1080/09638199600000006

Publisher

Taylor and Francis

Additional URL

http://dx.doi.org/10.1080/09638199600000006

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