Economics
Trade and Unemployment
Trade can impact unemployment by affecting the demand for domestic goods and services. Increased imports can lead to job displacement in industries facing competition from foreign producers, potentially contributing to higher unemployment. However, trade can also create employment opportunities through export industries and the overall expansion of the economy.
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6 Key excerpts on "Trade and Unemployment"
eBook - PDF- D. Greenaway, R. Upward, P. Wright, D. Greenaway, R. Upward, P. Wright(Authors)
- 2008(Publication Date)
- Palgrave Macmillan(Publisher)
5 Unemployment in Models of International Trade Udo Kreickemeier 5.1 Introduction In recent years, there has been a growing interest among trade theorists in the links between international trade and labour market distortions. The contributions to this literature employ microeconomic models of labour market distortions and combine them with a multi-sector model of an open economy. Typically, the labour market models employed in this context use either search theory or efficiency wage theory. The chapter by Davidson and Matusz in this volume considers the search theoretic models in some detail, which is why the focus of this chapter is on the efficiency wage literature. Much of the literature has used a modified Heckscher–Ohlin (HO) framework with two sectors and two factors of production that are mobile between sectors. Most of this chapter will focus on this framework as well. Rather then survey papers in the field in detail, I suggest a com- mon framework – a ‘prototype model’ – that illustrates the channels through which international trade affects aggregate unemployment (and the labour market more generally) as well as welfare in these Heckscher– Ohlin models that allow for labour market distortions due to efficiency wages. Compared to the standard HO model with perfectly competitive labour markets, (at least) three additional adjustment margins exist in the efficiency wage models surveyed here. First, the number of employed workers can vary. Second, the effort that these workers exert can vary. Third, there can be a wage differential between sec- tors, so the number of high wage (or low wage) workers can also vary. If an economy opens up to international trade, there are typically adjustments along all three margins. However, none of the extant 73 74 Globalisation and Labour Market Adjustment models in the literature allows adjustment along all margins – the obvi- ous reason being tractability issues.
eBook - PDFGlobalization and the State: Volume I
International Institutions, Finance, the Theory of the State and International Trade
- C. Peláez(Author)
- 2008(Publication Date)
- Palgrave Macmillan(Publisher)
186 Globalization and the State: Volume I employment. The debate in Europe has focused on the role of trade with devel- oping countries in the increase in unemployment and the decline of employment of unskilled workers. Wages in Europe are downwardly rigid such that a decline in demand for unskilled workers results in an increase in unemployment. However, the econometric research of Bentivogli and Pagano (1999) shows that the problems of European labor markets cannot be explained by the growth of trade with the NIEAs. Job destruction in the major European countries is inde- pendent of trade with the NIEAs. There is less clear evidence on the impact on job creation. There are sector-specific aspects – sector of last employment, sex and education – that are more important in explaining the situation of individuals in labor markets. The conventional economic model assumes that labor reallocates from less productive to more productive activities. In practice, there is the problem of dis- placed workers (Kletzer 2001, 1998). The Heckscher, Ohlin and Samuelson model does imply problems of distribution resulting from imports, lowering wages in unskilled occupations and the need of reallocating workers to jobs in skilled sec- tors. Kletzer (2001) emphasizes the neglect of the costs to workers instead of the focus of the literature on the numbers of jobs lost to globalization because total jobs depend on macroeconomic events and policy . Kletzer (2001) calculates that there was displacement in 1977–99 of 17 million workers in manufacturing and 6.4 million in import-competing industries. The losses in import-competing industries were concentrated in a few sectors: electrical machinery, apparel, motor vehicles, non-electric machinery and blast furnaces. There are important characteristics of the displacement of workers in import- competing activities.
eBook - PDFIn Defence of Labour Market Institutions
Cultivating Justice in the Developing World
- J. Berg, D. Kucera, J. Berg, D. Kucera(Authors)
- 2008(Publication Date)
- Palgrave Macmillan(Publisher)
The next section briefly outlines the economic theory of trade unions with reference to the role of employers as well as governments in unionized labour markets characterized by collective bargaining and dispute resolution mechanisms. Sections 8.3 and 8.4 summarize the empirical findings from a micro and macro perspective and section 8.5 concludes. 150 Zafiris Tzannatos 151 Table 8.1 Selected indicators of economic performance in studies assessing the effects of trade unions Microeconomic Macroeconomic Wage mark-up (wage premium Employment rate (the employed as % of unionized workers – versus of the population) non-union members) Adjustment speed (the mean adjustment Differences in the mark-up speed of employment to a shock) among different groups of workers Unemployment rate (for example, public/private, Persistence (how long it takes for ethnicity, gender) unemployment to return to its Efficiency loss of the wage mark-up original level) Wage dispersion/inequality Hysteresis (the extent to which past (by industry or occupation) unemployment determines current Economic environment (for example, unemployment) product competition) Search effectiveness (no. of vacancies at Employment level a given level of unemployment) Employment growth Labour supply Hours worked Inflation Voluntary turnover, lay-offs Compensation (wage) growth and job tenure Real wage flexibility (responsiveness Profitability of aggregate wages to unemployment) Productivity (levels or rate of growth) Aggregate earnings inequality Implementation of new technology Total factor productivity Physical investments Economic growth Research and development Okun’s Index (the sum of Training/schooling unemployment and inflation) Fringe benefits/health and Open Economy Index (the sum of safety regulations the unemployment rate and current Individual performance account deficit as % of GDP) pay and seniority Job Quality Index (the difference Pensions between the employment rate and the coefficient of variation in wages) Growth/Inflation Index (the sum of the slowdown in real GDP growth per capita and the rise in inflation between periods) 8.2 You need three to tango: workers, employers and governments What do unions do? It is evident that unions and collective
eBook - PDFGovernment Intervention in Globalization
Regulation, Trade and Devaluation Wars
- C. Peláez(Author)
- 2008(Publication Date)
- Palgrave Macmillan(Publisher)
89 Introduction In a rare consensus, economists tend to agree, with important exceptions, that there are benefits from trade in the form of more efficient resource allocation. The first section below provides the important analysis of the gains from trade. The relaxation of the conditions of the first-best of efficiency leads to the analysis of distortions or market failures that motivate more analysis. The main principle is to correct domestic distortions with domestic policy instruments, allowing the economy to obtain the benefits from trade. It is difficult to relate empirically trade openness and economic growth. The US uses antidumping and safeguard sanctions that many con- sider to be disguised protectionism. One of the most debated issues in policy is whether employment and wages of less skilled workers in advanced countries decline because of trade in goods produced by cheap labor, which are exported by developing countries. In 2004, the issue of losses of services jobs to offshore locations received dispropor- tionate attention in the press and public debates. The summary provides some conclusions. The gains from trade The basic analysis of the desirability of international trade focuses on the gains from trade. It is one of the first analyses of welfare economics: the wellbeing of the state of free trade of goods and services with other nations versus the state of no trade. There is the important proposition that some trade is better than no trade. Even trade with restrictions such as quotas and tariffs is better than no trade. A quota is a quantitative 6 International Trade of Goods and Services 90 Government Intervention in Globalization limit on imports, which are purchases from other countries, or exports, which are sales to other countries.
eBook - PDFTrading Economics
A Guide to Economic Statistics for Practitioners and Students
- Trevor Williams, Victoria Turton(Authors)
- 2014(Publication Date)
- Wiley(Publisher)
account surplus rather than a deficit, if the UK sells what people over-seas want to buy in a more cost-effective way than other countries. Is there a trade-off between wage levels and unemployment? The former effect has been called the Phillips curve. 4 Although this theory, which sought to establish a trade-off between wage levels and unemployment, has since been comprehensively disproved in terms of a causal link, it is clear that there is some association. PHILLIPS CURVE SHOWS NO DURABLE TRADE-OFF EXISTS A quick glance at Figure 3.5 shows that over time there is actually no trade-off between wage inflation and unemployment. In other words, you cannot argue that low wages lead to lower unemployment and vice versa in the long run – or, put another way, that falling unemployment 4 Named after New Zealand economist, William Phillips. In a paper published in 1958 he described an inverse relationship between money wage changes and unemployment in the British economy between 1861 and 1957. Labour Markets 75 might cause rising price inflation and, conversely, that a fall in price inflation might only be possible by allowing unemployment to rise. At the very least, what this means is that there is no causality (one does not lead to or explain the other), but that is not the same as saying that there is no value in the analysis at all. In the short run, there might be an effect if, for example, the government tried to drive up employment and so lower unemployment by increasing spending. The problem is that, although this may lower unemployment in the short run, pretty soon inflation expectations and inflation levels in labour and raw materials and other inputs increase, so that growth goes into reverse. What this debunking showed was that in order to get employment up and unemployment down, you needed a stable inflation environment and durable long-term policies for employment.
eBook - PDF- Steven A. Greenlaw, Timothy Taylor, David Shapiro(Authors)
- 2017(Publication Date)
- Openstax(Publisher)
Governments may need to rethink the design of their programs that offer assistance to unemployed workers and protections to employed workers so that they will not unduly discourage the supply of labor. Similarly, governments may need to reassess rules that make it difficult for businesses to begin or to expand so that they will not unduly discourage the demand for labor. The message is not that governments should repeal all laws affecting labor markets, but only that when they enact such laws, a society that cares about unemployment will need to consider the tradeoffs involved. 210 Chapter 8 | Unemployment This OpenStax book is available for free at http://cnx.org/content/col12190/1.4 Unemployment and the Great Recession In the review of unemployment during and after the Great Recession at the outset of this chapter, we noted that unemployment tends to be a lagging indicator of business activity. This has historically been the case, and it is evident for all recessions that have taken place since the end of World War II. In brief, this results from the costs to employers of recruitment, hiring, and training workers. Those costs represent investments by firms in their work forces. At the outset of a recession, when a firm realizes that demand for its product or service is not as strong as anticipated, it has an incentive to lay off workers. However, doing so runs the risk of losing those workers, and if the weak demand proves to be only temporary, the firm will be obliged to recruit, hire, and train new workers. Thus, firms tend to retain workers initially in a downturn. Similarly, as business begins to pick up when a recession is over, firms are not sure if the improvement will last. Rather than incur the costs of hiring and training new workers, they will wait, and perhaps resort to overtime work for existing workers, until they are confident that the recession is over.
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