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Calibrating the Employment Effects of Trade
Author(s) -
Matusz Steven J.
Publication year - 1998
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/1467-9396.00128
Subject(s) - monopolistic competition , economics , intuition , welfare , gains from trade , wage , labour economics , trade barrier , international economics , microeconomics , monopoly , market economy , philosophy , epistemology
The one‐sector model of monopolistic competition and intraindustry trade is merged with the Shapiro–Stiglitz model of efficiency wages to show that introducing trade increases employment in both countries. The intuition is that even when employment is held constant, trade improves worker welfare via increased variety of available goods. The increase in worker welfare relaxes the efficiency wage constraint, permitting an increase in employment. The increase in employment magnifies the benefits of trade. The model is calibrated to US data to estimate the employment effects of eliminating all trade and eliminating trade with Mexico and Canada.