Labour‐market institutions and their impact on trade partners: A quantitative analysis |
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| Authors: | Gabriel J Felbermayr Mario Larch Wolfgang Lechthaler |
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| Affiliation: | 1. Economics Department, ifo InstituteLeibniz Institute for Economic Research at the University of Munich;2. University of Bayreuth, Faculty of Law and Economics, ifo Institute, Leibniz Institute for Economic Research at the University of MunichCESifo;3. Kiel Institute for the World Economy |
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| Abstract: | 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. |
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