International trade and macroeconomic dynamics with labor market frictions

This paper studies how labor market frictions affect the consequences of trade integration in a two-country dynamic stochastic general equilibrium model with heterogeneous firms and endogenous producer entry. Two main results emerge. First, trade integration is beneficial for welfare by inducing higher productivity, but unemployment can temporarily rise during the transitional adjustment. Labor market rigidities reduce gains from trade, even though they can mitigate short-run employment losses. Second, consistent with the data, the model predicts that stronger trade linkages lead to increased business cycle synchronization. The strength of this effect, however, depends on the labor market characteristics of the integrating partners.     

A race to the bottom? Employment protection and foreign direct investment

A common critique of globalization is that it leads to a race to the bottom. Specifically, it is assumed that multinationals invest in countries with lower regulatory standards and that countries competitively undercut each other's standards in order to attract foreign capital. This paper tests this hypothesis and finds robust empirical support for both predictions. First, a reduction in employment protection rules leads to an increase in foreign direct investment (FDI). Furthermore, changes in employment protection legislation have a larger impact on the relatively mobile types of FDI. Second, there is evidence that countries are competitively undercutting each other's labor market standards.     

Unionized labor markets and globalized capital markets

This paper studies the effects of international integration of capital markets in a world where countries differ in their labor market institutions: one country has a perfectly competitive labor market while the other is unionized. We show that workers should favor autarky in the unionized country, but oppose it in the non unionized country and vice versa for owners of capital. Aggregate gains from integration, however, are negative. We also show that, under capital mobility, an increase in relative bargaining power of unions does not always improve workers' welfare.     

Migration and trade: Theory with an application to the Eastern-Western European integration

The remarkable increase in trade flows and in migratory flows of highly educated people are two important features of globalization of the last decades. This paper extends a two-country model of inter- and intra-industry trade to a rich environment featuring technological differences, skill differences and the possibility of international labor mobility. The model is used to explain the patterns of trade and migration as countries remove barriers to trade and to labor mobility. We parameterize the model to match the features of the Western and Eastern European members of the EU and analyze first the effects of the trade liberalization which occurred between 1989 and 2004, and then the gains and losses from migration which are expected to occur if legal barriers to labor mobility are substantially reduced. The lower barriers to migration would result in significant migration of skilled workers from Eastern European countries. Interestingly, this would not only benefit the migrants and most Western European workers but, via trade, it would also benefit the workers remaining in Eastern Europe.     

World market integration through the lens of foreign direct investors

This paper is motivated by the unparalleled increase in foreign direct investment to emerging market economies of the last 25 years. Using a large cross-country time-series data set, we evaluate the dependence of foreign direct investment on global factors, or worldwide sources of risk (i.e., factors that drive foreign direct investment across several countries). We construct a globalization measure that equals the share of explained variation in direct investment attributable to global factors. We show that our globalization measure has increased steadily for developing and developed countries. For the full sample of countries, the globalization measure rose by over 10-fold from 1985 to 1999. Furthermore, in recent years, developing countries' exposure to global factors has approached that of developed countries. Finally, our globalization measure correlates strongly with measures of capital market liberalization, supporting our hypothesis that increased market integration leads to a greater role for worldwide sources of risk. We discuss the implications of our results for public policies regarding capital market liberalization and policies directed at attracting foreign investment.     

Wage bargaining and multinational firms

We set up a general equilibrium model with heterogeneous firms to study the interaction between wage bargaining and foreign direct investment. Thereby, we highlight the incentives of firms to invest abroad in order to improve their bargaining position vis-á-vis local unions and we show how changes in the bargaining power of unions affect the share of multinational firms in an open economy. In addition, taking into account this relationship between wage bargaining and foreign direct investment, our analysis provides novel insights on how labor income and the unemployment rate adjust to economic integration and how changes in the bargaining power of unions affect these two labor market variables.     

The effect of trade liberalization on child labor

The question of how trade liberalization affects the employment of children in developing economies is at the core of the debate on globalization. Trade theory predicts that an increase in the price of an exported good could either increase or decrease child labor depending on the magnitudes of the substitution and income effects. In this paper, we study the relationship between changes in the relative price of an exported commodity and child labor using household-level data from within a poor country. In particular, we relate child labor to regional and intertemporal variation in the real price of rice surrounding national and international rice market integration in Vietnam. We find that higher rice prices are associated with declines in child labor. Income effects play an important role in this relationship. Rice price increases are associated with the largest declines in child labor in households that are large net producers of rice. These findings show that greater market integration can be associated with less child labor. Moreover, our results suggest that the use of punitive trade sanctions on exports from developing countries to eradicate child labor is unlikely to yield the desired outcome.     

西方国家劳动力市场灵活化改革的理论分析

灵活化目前已成为西方国家劳动力市场改革的主要发展趋势。西方国家希望通过放弃凯恩斯主义的劳动就业宏观需求管理政策、减少政府和工会对劳动力市场的管制与干预,以及实行激活性劳动就业政策等措施来降低劳动力市场的刚性,提高就业率。从理论上来讲,劳动力市场灵活化改革的根源在于:凯恩斯主义就业政策的失灵、刚性劳动力市场的低效率和全球化时代生产方式与就业模式的根本性变革。同时,劳动力市场的灵活化也被认为是降低失业率的一条有效途径,也是政府、资本和工会之间新的力量平衡下的一种选择。     

Labor demand and trade reform in Latin America

Trade liberalization is thought to result in higher own-wage elasticities of labor demand, particularly for unskilled labor, with adverse implications for both labor market volatility and wage dispersion. The paper first argues that theoretically the link between liberalization and labor-demand elasticities is less clear than has previously been asserted. It then uses dynamic panel techniques to estimate labor-demand relations for manufacturing establishments in Chile, Colombia, and Mexico across periods of trade policy reform. The results do not strongly support the hypothesis that trade liberalization has a direct impact on own-wage elasticities.     

Globalization and Greater Flexibility in the Japanese Labor Market: Exploring the Macro–Micro Link

The author explores the missing links between globalization and greater flexibility in the Japanese labor market based on review of literature and available evidence. Understanding Japan’s responses to globalization requires a nuanced approach, which accounts for its historical trajectory and social-institutional context. Along with globalization, Japan is experiencing a greater infusion of foreign capital, and an increasing presence of foreign firms. These foreign firms bring human resource practices that are more market driven and less socially embedded compared to the status quo. The diverging human resources practices of foreign firms have spillover effects that may destabilize the Japanese employment system in the long run.     

DUAL LABOR MARKETS AND THE IMPACT OF MINIMUM WAGES ON ATYPICAL EMPLOYMENT

We present a growth model that contains minimum wages as one important element of a flexicurity economy where we allow for heterogeneous labor and for real wage rigidities. We show that the wage‐setting process, in its reference to the reservation wage of the first labor market, is crucial as regards stability of the economy and persistent or explosive oscillations may occur, in particular when the influence of the reservation wage on wage formation in the first labor market becomes too strong. Further, minimum wages can alleviate the negative consequences of economic downturns and help stabilize the economy.     

Exchange rate determination: The role of factor price rigidities and nontradeables

This paper introduces factor (labor) markets into the intertemporal monetary model of Obstfeld and Rogoff and combines this richer market structure with a new utility-independent representation of nontradeables. This allows us to explore the international monetary transmission mechanism for factor price (wage) rigidities under different degrees of macroeconomic openness. Factor price rigidities imply similar properties for the international transmission mechanism as domestic producer price rigidities. Nontradeables give raise to interesting new effects under asymmetric monetary shocks: They create short-run PPP deviations, increase exchange rate volatility relative to price level volatility and reduce (positive) consumption and (negative) output comovements.     

Does globalization weaken labor unions in developing countries?

For a developing economy with a given urban wage rate, globalization in capital markets strengthens labor unions. This result hinges on the fixed urban wage rate, which leads to a constant capital–labor ratio in the urban sector. Globalization via capital inflows not only enhances the employment effect of unionization but also reduces the rent-shifting related loss in production inefficiency to domestic capital, lending a support to labor unions for developing economies. This result is contrary to the common belief that labor unions tend to be weakened during the globalization process observed after 1980s in many developed economies.     

关于江苏企业“走出去”的思考

在经济全球化条件下,企业"走出去",在国际市场占有一席之地,企业才能扩展自己生存与发展的空间.目前,江苏省国有大中型企业体制僵化,企业在缺乏技术优势和持续创新能力以及缺乏资金实力的情况下.难以真正"走出去",无法应对快速变化的海外市场.江苏省应优先推动民营、私营企业"走出去",优先推动对外承包工程和劳务输出,优先推动大中型企业到发达国家设立技术开发机构,鼓励大中型企业投资、收购海外高科技中小企业,把"引进来"和"走出去"结合起来,充分利用国内外两个市场、两种资源,提高江苏经济的国际竞争力.     

Trade and imperfect competition in general equilibrium

This paper employs a multi-industry general equilibrium model of oligopolistic competition, free market entry and trade in which capital is used to establish firms and labor is used for production. We show that both absolute and relative endowments matter for the pattern of trade. We demonstrate that market entry to each industry is either too excessive or too moderate while the effect on firm size is ambiguous. If countries are sufficiently symmetric, trade will increase the wage–rental ratio in both countries. Furthermore, trade will increase per-capita consumption in capital-intensive industries and reduce it in labor-intensive industries. Nevertheless, trade will be mutually welfare-improving under relatively mild conditions.     

Can deunionization lead to international outsourcing?

We analyze unionized firms' incentives to outsource intermediate goods production to foreign (low-cost) subcontractors. Such outsourcing leads to increased wages for the remaining in-house production. We find that stronger unions, which imply higher domestic wages, reduce incentives for international outsourcing. Though somewhat surprising, this result provides a theoretical reconciliation of the empirically observed trends of deunionization and increased international outsourcing in many countries. We further show that globalization - interpreted as either market integration or increased product market competition - will increase incentives for international outsourcing.     

Offshoring and unemployment: The role of search frictions labor mobility

In a two-sector, general-equilibrium model with labor-market search frictions, we find that the wage increases and sectoral unemployment decreases upon offshoring in the presence of perfect intersectoral labor mobility. If, as a result, labor moves to the sector with the lower (or equal) vacancy costs, there is an unambiguous decrease in economywide unemployment. With imperfect intersectoral labor mobility, unemployment in the offshoring sector can rise, with an unambiguous unemployment reduction in the non-offshoring sector. Imperfect labor mobility can result in a mixed equilibrium in which only some firms offshore, with unemployment in the offshoring sector rising.     

Rethinking the area approach: Immigrants and the labor market in California

A framework that uses a Constant Elasticity of Substitution (CES) production function with skill differentiation and integrated national labor markets has predictions for the employment effect of immigrants at the local level. The employment (rather than wage) response to immigration by skill in a state reveals the production substitutability-complementarity between native and immigrant labor. This, in turn, reveals the degree to which immigrants stimulate or depress the demand for native labor. To estimate this elasticity, I use a novel instrument based on demographic characteristics of total Central American migrants or of the Mexican Population to predict immigration by skill level within California. Looking at immigration to California between 1960 and 2005 these estimates support the assumption of a nationally integrated labor market by skill and they support the hypothesis that natives and immigrants in the same education-experience group are not perfectly substitutable. This explains the counter-intuitive fact that there is a zero correlation between immigration and wage and employment outcomes of natives in the state.     

FISCAL POLICY AND ECONOMIC GROWTH IN THE IMPERFECT LABOR MARKET

Using a simple overlapping generations model with the growth engine of public capital by incorporating the union wage setting, we examine the effects of fiscal policies on unemployment, economic growth and welfare in the imperfect labor market. We demonstrate that the growth‐maximizing tax in the imperfect labor market is larger than that of the perfect labor market. However, as the allocation ratio of public capital increases, the growth‐maximizing tax in the imperfect labor market approaches that of the perfect labor market, thus reducing the unemployment rate. The policy implications of the intergenerational welfare aspects are also mentioned.