Unemployment of Skilled and Unskilled Labor in an Open Economy: International Trade,Migration, and Outsourcing

We show how international trade, migration, and outsourcing affect unemployment of skilled and unskilled labor, in a framework that integrates the Heckscher–Ohlin model of trade with the Shapiro–Stiglitz model of unemployment. Our approach allows us to analyze changes in not only aggregate unemployment, but also the distribution of unemployment between skilled and unskilled labor. As the analysis demonstrates, the unemployment rates of these two types of labor often move in opposite directions, thereby dampening the change in aggregate unemployment. Results depend on the source of comparative advantage, based on international differences in (for example) unemployment insurance or production technology.     

Bilateral Exchange Rates and Jobs

We study the labor market effects of realignment in fixed bilateral exchange rates, such as China's peg to the US dollar. We employ the open economy model by de Melo and Robinson to identify the core parameters of the real, trade side of the economy driving the unemployment effects of bilateral exchange rate realignment. A small open economy version of the model is explored analytically and a large multicountry version numerically. Analytics in the small open economy model show that unemployment effects of adjusting of a bilateral peg hinge on the fraction exported to and imported from the trading partner. A larger fraction exported to and a smaller fraction imported from the trading partner make it more likely that revaluation of a trading partner's currency has beneficial effects. Numerics in the large economy model show that Chinese revaluation can generate both positive and negative unemployment effects depending upon underlying parameter values. Adverse unemployment effects can go along with an improving trade balance.     

Fiscal adjustment and labor market dynamics in an open economy

This paper studies the labor market effects of fiscal adjustment in a two-sector, three-good intertemporal framework. Key features of the model are an informal sector, minimum wages, unionized labor in the formal economy, imperfect labor mobility, and public production of intermediate inputs. “Luxury” and wait unemployment prevail in equilibrium. It is shown that if unions care sufficiently about employment, and if the degree of openness is high, an increase in the price of government services may reduce unemployment in the steady state. A similar result would hold in an efficiency-wage setting if the “disciplinary effect” of unemployment is sufficiently strong.     

ECONOMICS OF THE CANADIAN BISHOPS

The author welcomes the bishops' statement as an expression of the uniquely moral aspect of the Canadian unemployment crisis. The statement is dramatic, compassionate and deeply ethical in its concern for the Canadian economy and its people—especially for the poor, the afflicted, and the oppressed. However, the bishops' public policy recommendations are ill-advised and incompatible with the attainment of their very worthwhile goals. By relying on a quasi-Marxist economic analysis, the bishops misconstrue the role and effects of inflation, price controls, technological progress, welfare, and the labor union movement. To achieve economic progress, including a cure for unemployment, a move toward freer markets is needed—not more government intervention.     

Unemployment and International Factor Movement in the Presence of Skilled and Unskilled Labor

Widespread unemployment has been observed in some developing countries. On the other hand, extensive movement of labor across countries has also been observed. Therefore, in order to examine the interaction between the domestic and international labor markets, this paper develops a model that includes unemployment, international factor movement, and the difference between skilled and unskilled labor. The model examines the effect of production subsidies on unemployment and evaluates their effectiveness as a possible policy in order to alleviate the problem of unemployment. Further, this paper investigates the effects of international factor movement on unemployment and welfare.     

Employment effects of stabilization policies

This paper studies the effects of a stabilization program based on a reduction in the devaluation rate in an optimizing model with capital controls, minimum wages for unskilled labor, an informal sector, and public production of intermediate inputs. Perfect mobility across sectors of the unskilled labor force prevents the emergence of unemployment for that category of labor, but skilled unemployment prevails in equilibrium. The analysis highlights the role of endogenous labor market segmentation in assessing the wage and employment effects of stabilization policies.     

DRIFTING APART: CANADIAN AND U.S. LABOR MARKETS

Canadian and U.S. unemployment rates moved together within a narrow margin from 1961 to the mid-1970s. Since then, Canadian rates have exceeded U.S. rates by large margins—at times as much as 3 percentage points. Throughout this period, interest rates in the two countries have been nearly identical. Aggregate demand stimulation by government deficits has been greater in Canada than in the U.S., and the trade surplus in Canada has added to demand while the trade deficit in the U.S. has subtracted from demand. Therefore, it seems that conventional Keynesian arguments cannot explain the recent differences in unemployment rates.
Differences in labor market developments, however, can do so. During a period when real wages rose 35 percent in Canada, they fell 5 percent in the U.S. Since the recession of 1981, U.S. wages have dropped while Canadian wages have remained constant. Differences in labor productivity do not account for these developments. A strong case exists for the argument that the different paths of unemployment rates are due to different paths of real wage developments.
It is argued that the causes for these differences in labor market conditions are associated with substantial growth and decreases in unionization rates in Canada and the U.S., respectively. In addition, the unemployment insurance system in Canada is shown to be considerably more generous than that in the U.S.     

累进性劳动所得税、失业波动与内生稳定器——一个动态新凯恩斯主义的视角

将累进性劳动所得税引入NKMP—DSGE模型中考察失业波动与累进性税收的宏观效应。贝叶斯脉冲响应函数表明,外生冲击对于就业与失业具有不同的冲击效应,因而忽略失业可能引起结论的偏误;失业的贝叶斯冲击分解结果表明,货币政策冲击是推动我国失业波动最重要的力量,并且我国劳动力市场存在显在的“失业回滞”。进一步,通过模型比较发现,累进性劳动所得税具有内生稳定器的作用。在失业问题日益严峻的背景下,采用对劳动力市场做出反应的货币政策机制以降低失业,并使用内生稳定器缓和经济波动,将可能实现降低失业与缓和经济波动的双重效果。     

Macroeconomic policy lessons of labor market frictions

The paper explores the consequences of macroeconomic policy for labor market outcomes in the presence of frictions. It shows how policy may be useful in over-riding frictions, as well as how it might generate adverse outcomes. A partial-equilibrium, empirically grounded model is used to simulate policy effects.The key results are that policy has effects on the stochastic behavior of key variables - measures that reduce unemployment also reduce its persistence and increase the volatility of vacancies. Hiring subsidies and unemployment benefits have substantial effects on labor market outcomes, while employment subsidies or wage tax reductions are not very effective policy instruments.     

Migration,Unemployment, and Skill Downgrading

In this paper, we analyze the labor market impacts of immigration under flexible and rigid labor market regimes. A general equilibrium framework is developed, accounting for skill heterogeneity and labor market frictions, where unemployed medium‐skilled manufacturing workers are downgraded into low‐skilled service jobs, while low‐skilled service workers might end up unemployed. The analytical analysis shows that medium‐skill immigration decreases low‐skilled unemployment under the flexible regime, indicating a complementarity effect, while the rigid regime induces a substitution effect, leading to low‐skilled unemployment. Moreover, it leads to wage polarization. In a numerical analysis, the economic effects of different migration scenarios are quantified.     

The share economy in general equilibrium

Weitzman's 1982 paper on increasing returns and unemployment equilibrium is driven by the presence of a Clower constraint and does not provide a persuasive model of unemployment. The employment effects of implementation of a share economy are impossible to evaluate until unemployment equilibrium is understood. Further, the determination and adjustment of the share parameter and of labor demand are unsatisfactory in Weitzman's model.     

Unemployment and Crime: Is There a Connection?

A panel of Swedish counties over the years 1988–1999 is used to study the effects of unemployment on property crime rates. The period under study is characterized by turbulence in the labor market—the variation in unemployment rates was unprecedented in the latter part of the century. Hence, the data provide a unique opportunity to examine unemployment effects. According to the theory of economics of crime, increased unemployment rates lead to higher property crime rates. A fixed‐effects model is estimated to investigate this hypothesis. The model includes time‐ and county‐specific effects and a number of economic and socio‐demographic variables to control for unobservables and covariates. The results show that unemployment had a positive and significant effect on some property crimes (burglary, car theft and bike theft).     

Skilled-unskilled wage inequality and unemployment: A general equilibrium analysis

The paper develops a static three sector competitive general equilibrium model of a small open economy in which skilled labor is mobile between a traded good sector and the non-traded good sector and unskilled labor is specific to another traded good sector. Capital is perfectly mobile among all these three sectors. We introduce involuntary unemployment equilibrium in both the labor markets and explain unemployment using efficiency wage hypothesis. We examine the effects of change in different factor endowments and prices of traded goods on the unemployment rates and on the skilled-unskilled relative wage. Also, we introduce Gini-Coefficient of wage income distribution as a measure of wage income inequality; and show that a comparative static effect may force the skilled-unskilled relative wage and the Gini-Coefficient of wage income distribution to move in opposite directions in the presence of unemployment.     

The effect of working time and labor force participation on unemployment: A new argument in an old debate

This paper introduces a new argument into the theoretical literature on labor market effects of changes in working hours and labor force participation. We advance a general equilibrium model in which increased labor supply reduces unskilled unemployment via consumer demand: longer work hours and higher labor force participation imply higher incomes and less (leisure) time. In consequence, home production is reduced in favor of outsourcing domestic tasks to the market, shifting consumer demand toward unskill-intensive goods. Relative demand for unskilled labor rises and unemployment falls.     

A Schumpeterian model of equilibrium unemployment and labor turnover

This paper constructs a general equilibrium model of equilibrium unemployment by combining an endogenous growth model with a variant of equilibrium search theory. The analysis offers two explanations for the causes of widening wage gap between skilled and less-skilled labor, and rising unemployment rate among the less skilled: technological change in the form of an increase in the size of innovations or skilled labor saving technological change in R&D activity. In addition, the model identifies two distinct effects of faster technological progress on the aggregate unemployment rate. First, it increases the rate of labor turnover and therefore increases the aggregate unemployment rate – the creative destruction effect. Second, it creates R&D jobs, which offer workers complete job security, and consequently reduces the aggregate unemployment rate – the resource reallocation effect.     

The cause of Danish unemployment: Demand or supply shocks?

We study the Danish unemployment experience 1905–92 using a common trends model with cointegration constraints. To justify the identifying assumptions about the cointegration vectors and the common trends we present a simple macroeconomic model of the labor market. The model determines the long run behavior of labor productivity, employment, unemployment, real product and real consumer wages. The empirical results give support for three cointegration relations and two common trends. Based on the economic model the trends are interpreted as representing labor productivity (technology) and labor supply. With unemployment being nonstationary, the common trends analysis indicates that labor supply shocks is the primary source for explaining the behavior of unemployment. First Version Received: August 1999/Final Version Received: June 2000     

Excess demand for labor, unemployment, and theories of the Phillips curve

This article has two purposes. First, to examine the assumption that it is possible to map uniquely between unemployment and excess demand for labor; this assumption plays a key role in the theory of the Phillips curve. We show that as both unemployment and excess demand for labor are endogenous and simultaneously determined, in general it is not possible to obtain a unique mapping between unemployment and excess demand for labor and that the Lipsey and Barro and Grossman derivations of the Phillips curve are invalid. Secondly, the article recommends that wage, employment, and unemployment behavior be modelled using short-run supply and demand curves, that is, in a Marshall-Hicks temporary equilibrium framework.     

Minimum wages and youth unemployment

This paper constructs a labor search model to explore the effects of minimum wages on youth unemployment. To capture the gradual decline in unemployment for young workers as they age, the standard search model is extended so that workers gain experience when employed. Experienced workers have higher average productivity and lower job finding and separation rates that match wage and worker flow data. In this environment, minimum wages can have large effects on unemployment because they interact with a worker's ability to gain job experience. The increase in minimum wages between 2007 and 2009 can account for a 0.8 percentage point increase in the steady state unemployment rate and a 2.8 percentage point increase in unemployment for 15–24 year old workers in the model parameterized to simulate outcomes of high school educated workers. Minimum wages can also help explain the high rates of youth unemployment in France compared to the United States.     

Imperfect Labor Mobility and Unemployment in a Dual Economy*

This paper examines the implications of imperfect labor mobility and unemployment in developing countries. We analyze the effects of wage subsidy policies, factor growth, and the change in labor mobility on unemployment and national income in an economy that is characterized by the existence of both imperfect labor mobility and urban unemployment.     

Human capital and economic growth: A macroeconomic model for Pakistan

The paper presents a small macro model for Pakistan economy focusing the impact of investment in human capital on the key macroeconomic variables. The demand side is modeled along the Keynesian lines while the supply side is modeled as per neoclassical theory of production. This framework allows analyzing the effects of investment in human capital on supply side variables (like labor, physical and human capital) and demand side variables (like consumption and investment) at the same time.The model has small forecasting horizon in which three alternative scenarios regarding government spending on education are evaluated from 2012 to 2016. The model shows that the link between human capital and labor market is weak however a change in education spending affects output through enhancing productivity and through multiplier-accelerator principle. Though the model is small in size and forecasting horizon, it can help in evaluating the future paths of key macroeconomic variables associated with education spending.