International Trade, Unemployment, and Firm Owners in a General Equilibrium with Oligopoly

Kamei, Keita (2014): International Trade, Unemployment, and Firm Owners in a General Equilibrium with Oligopoly.

Abstract

This paper incorporates the efficiency wage model of Shapiro and Stiglitz (1984) into a general oligopolistic equilibrium model of Neary (2009). We show that the pro-competitive effect stemming from trade liberalization increases the real wage of employees and relaxes the non-shirking condition. Therefore, the unemployment rate improves. Using numerical analysis, we show that, if firm productivity is sufficiently low, trade liberalization improves the utility of firm owners.

• Item Type: MPRA Paper
• Language: English
• Keywords: Efficiency wages; Unemployment; International trade; General equilibrium with oligopoly (GOLE); Cournot competition
• Subjects: F - International Economics > F6 - Economic Impacts of Globalization > F66 - Labor; J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers > J64 - Unemployment: Models, Duration, Incidence, and Job Search

References

Altenburg, L. and A. Brenken (2008) ``Effort, Trade, and Unemployment'' Canadian Journal of Economics 41(3), pp. 864--893.

Beard, R. (2013) ``N-Firm Oligopoly with General Iso-Elastic Demand'' Bulletin of Economic Research, DOI: 10.1111/boer.12009.

Davidson, C. and S. J. Matusz (2010) International Trade with Equilibrium Unemployment, Princeton NJ: Princeton University Press.

Davis, D. and, J. Harrigan (2011) ``Good Jobs, Bad Jobs, and Trade Liberalization'' Journal of International Economics 84, pp. 26--36.

Dutt, D. P., D. Mitra, and, P. Ranjan (2009) ``International Trade and Unemployment: Theory and Cross-National Evidence'' Journal of International Economics 78, pp. 32--44.

Egger, H. and D. Etzel (2012) ``The Impact of Trade on Employment, Welfare, and Income Distribution in Unionized General Oligopolistic Equilibrium''European Economic Review 56, pp. 1119--1135.

Egger, H. and U. Kreickemeier (2009) ``Firm Heterogeneity and Labor Market Effects of Trade liberalization'' International Economic Review 50(1), pp. 187--216.

Helpman, E. and O. Itskhoki (2010) ``Labor Market Rigidities, Trade and Employment''Review of Economic Studies 77, pp. 1100--1137.

Hoon, H. T. (1994) ``The Impact of Intraindustry Trade on the Natural Rate of Unemployment in Two Simple Models'' Open Economies Review 5, pp. 29--46.

Kamei, K. (2014) ``Pro-Competitive Effect, Division of Labor, and Firm Productivity'' Economics Letters 124(1), pp. 132--135.

Kreickemeier, U. and F. Meland (2013) ``Non-Traded Goods, Globalization and Union Influence'' Economica 80(4), pp. 774--792.

Krugman, P. (1980)``Scale economies, product differentiation, and the pattern of trade'' American Economic Review, 70(5), pp. 950--959.

Matusz, S. (1996)} ``International Trade, the Division of Labor, and Unemployment'' International Economic Review 84, pp. 71--84.

Matusz, S. (1998) ``Calibrating the Employment Effects of Trade'' Review of International Economics 6(4), pp. 592--603. \item{McAfee, R. P. and T. R. Lewis (2009)} Introduction to Economic Analysis, Flat World Knowledge.

Melitz, M. (2003) ``The Impact of Trade on Intra-industry Reallocations and Aggregate Industry Productivity.'' Econometrica,71, pp. 1695--1725.

Moore, M. P. and P. Ranjan (2005) ``Globalisation vs Skill-Biased Technological Change: Implications for Unemployment and Wage Inequality'' Economic Journal 115, pp. 391--422.

Neary, J. P. (2009) ``International Trade in General Oligopolistic Equilibrium.'' Unpublished Manuscript, University of Oxford.

Gorman, W. M. (1961) "On a class of preference fields". Metroeconomica 13, pp. 53--56.

Shapiro, C. and J. Stiglitz (1984) ``Equilibrium Unemployment as a Worker Discipline Device'' American Economic Review 74, pp. 433--444.