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Trade and Labor Market Imperfection: A Model with Status Conscious Preference

Mazumder, Debojyoti (2013): Trade and Labor Market Imperfection: A Model with Status Conscious Preference.

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Abstract

The present model develops a hypothetical economy with status conscious individuals and two types of labor markets. One exhibits search friction, while the other is perfectly competitive. It is shown that in equilibrium, this economy with a status-conscious preference may yield unemployment. If such a single factor economy, with one non-traded final good and two traded intermediate goods, opens up to trade then the difference in the degree of the labor market imperfection becomes a source of comparative advantage between two otherwise identical countries. Complete specialization is impossible in such a uninhibited set up. Moreover, trade does not equalize wages within the country, neither does it guarantee the reduction of unemployment.

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