Impact of International Trade on Unemployment under Oligopoly

Zhou, Haiwen (2017): Impact of International Trade on Unemployment under Oligopoly.

Abstract

By studying a two-sector general equilibrium model in which firms engage in oligopolistic competition and unemployment is a result of the existence of efficiency wages, we derive the following results analytically. A country’s comparative advantage in producing manufactured goods increases with the level of efficiencies in the labor market. The opening of international trade leads to the equalization of wage rates even though countries differ in their factor endowments and labor market efficiencies. If countries have the same level of labor market efficiencies but differ in their endowments of labor and land, the opening to international trade leads to an increase in the wage rate in both countries.

• Item Type: MPRA Paper
• Language: English
• Keywords: Unemployment, international trade, oligopoly, efficiency wages, increasing returns
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity; F - International Economics > F1 - Trade > F12 - Models of Trade with Imperfect Competition and Scale Economies ; Fragmentation; J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers > J64 - Unemployment: Models, Duration, Incidence, and Job Search

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