The Balassa-Samuelson model with job separations |
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| Affiliation: | 1. UTokyo Economic Consulting Inc., 7-3-1 International Academic Research Bldg. #922 University of Tokyo, Hongo, Bunkyo-ku, Tokyo 113-0033, Japan.;2. Meiji Gakuin University, 1-2-37 Shirokanedai, Minato-ku, Tokyo 108-8636, Japan.;3. Nihon University, 1-3-2 Misakicho, Chiyoda-ku, Tokyo 101-8360, Japan, and Research Institute of Economy, Trade and Industry (RIETI), 1-3-1, 11th floor, Kasumigaseki, Chiyoda-ku, Tokyo 100-8901 Japan.;1. Chiba University, 1-33 Yayoi-cho, Inage-ku, Chiba-shi, Chiba 263-8522, Japan;2. Hosei University, 4342 Aihara-machi, Machida-shi, Tokyo 194-0298, Japan;3. Economic and Social Research Institute, Cabinet Office, 1-6-1 Nagata-cho, Chiyoda-ku, Tokyo 100-8914, Japan;1. Tianhong Asset Management Co., Ltd. Xicheng District, Beijing 100032, China;2. Hitotsubashi Institute for Advanced Study, Hitotsubashi University, Kunitachi, Tokyo 186-8601, Japan;3. Faculty of International Social Sciences, Gakushuin University, Toshima-ku, Tokyo 171-8588, Japan |
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| Abstract: | We incorporate sectoral job separation rates in a small open economy model to examine the Balassa-Samuelson (B-S) effect. Unequal separation rates give rise to compensating wage differentials. We simulate the model for Japan and replicate a feature of its economy that the nontradeables sector has higher wages and a higher separation rate compared to the tradeables sector. With productivity growth in the tradeables sector, labour moves from the tradeables sector to the nontradeables sector if tradeables and nontradeables are complements in consumption. The B-S effect is dampened. With a higher separation rate in the nontradeables sector, higher wages in the nontradeables sector amplifies this labour movement. Nevertheless, unemployment always falls due to a positive income effect. In contrast, the effect of productivity growth in the nontradeables sector is to lower the real exchange rate and raise unemployment. |
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| Keywords: | Balassa-Samuelson Unemployment Compensating wage differential Job matching |
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