Unemployment in open economies. A search theoretic analysis (Q1587501)

The book examines the unemployment problem in an open economy within a rigorously theoretical framework. The focus is on the mismatch between labour demand and labour supply. For that purpose, new models in labour economics concerning the search and matching theory are used, each illuminating another characteristic suitable to describe a group of countries. Consequently, the effect of an intensified international trade represented by a change in the terms of trade can be analysed for a broad class of countries. More specifically, the analysis is concentrated on inter-industry trade and therefore describes trade between industrialised countries and developing or newly industrialised ones. It is shown that an increased competition on the world goods markets leads to an increase in the industrialised countries unemployment rate only if the wages are not fully flexible. At the same time, it is demonstrated that changes on the world markets may help to explain the observed development of the unemployment vacancy rate. The book consists of 7 chapters. The first chapter provides a general introduction in the subject. The second chapter presents stylised facts concerning labour markets and international trade. Chapters 3 through 6 are devoted to unemployment and trade in search models. The sequence of models presented within these chapters is the foundation for a theoretical framework in which the problem of unemployment in open economies with search frictions can be analysed properly. The analysis starts with chapter 3 that presents and extends the Piasarides matching model considering an economy with risk-neutral individuals. Chapter 4 draws attention to risk-averse individuals forming the basis on which the effect of risk aversion in an open economy can be studied. Both chapters rely on the assumption that potential workers and firms directly negotiate wages. Chapter 5 on the other hand studies the effects of trade on economies with industry-level wage bargaining. Chapter 6 extends the analysis to the long run, while chapter 7 summarises the derived results and makes a few policy conclusions. The book provides valuable insights, which might enrich the subjects taught at undergraduate courses. Moreover, scholars interested in the interaction of foreign trade and employment may find in it suggestions for future research.