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Labour‐market institutions and their impact on trade partners: A quantitative analysis
Author(s) -
Felbermayr Gabriel J.,
Larch Mario,
Lechthaler Wolfgang
Publication year - 2015
Publication title -
canadian journal of economics/revue canadienne d'économique
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.773
H-Index - 69
eISSN - 1540-5982
pISSN - 0008-4085
DOI - 10.1111/caje.12185
Subject(s) - stylized fact , economics , unemployment , spillover effect , matching (statistics) , rigidity (electromagnetism) , wage , relevance (law) , labour economics , international economics , affect (linguistics) , macroeconomics , linguistics , philosophy , mathematics , structural engineering , political science , law , engineering , statistics
Recent theoretical literature studies how labour market reforms in one country can affect labour market outcomes in other countries, thereby rationalizing widely held policy beliefs and empirical evidence. But what is the quantitative relevance of such spillover effects? This paper combines two recent workhorse models: the canonical search‐and‐matching framework and the heterogeneous firms international trade model. Qualitatively, the framework confirms that labour market reforms in one country benefit its trading partners, replicating the stylized facts. However, when wages are bargained flexibly, the model quantitatively underestimates the correlation of structural unemployment rates across countries. Introducing some degree of real wage rigidity remedies this problem.