Comparative Advantage and Skill-specific Unemployment

Working Paper

Kiel Working Papers, 1538 Download

We introduce unemployment and endogenous selection of workers into

different skill-classes in a trade model with two sectors and

heterogeneous firms. This allows us to study the distributional

consequences and the skill-specific unemployment effects of trade

liberalization. We show that the gains from trade will be

distributed very unequally. While unskilled workers loose in terms

of real wages and employment levels in the skilled labor intensive

sector, skilled workers loose in terms of real wages and

unemployment levels in the unskilled labor intensive sector.

However, the inequality of workers between sectors is much larger

for skilled labor than for unskilled labor. On average, unemployment

among unskilled workers increases when a skill-abundant country

opens up to trade.

Key Words