Empirical Methods in International Trade

Empirical Methods in International Trade

Essays in Honor of Mordechai Kreinin

Edited by Michael G. Plummer

Internationalization of the world economy has made trade a key factor in the growth potential of nearly every nation’s economy. Hence, economists have become increasingly interested in the determinants of international trade and competitiveness. Empirical Methods in International Trade captures the many aspects of this trend in globalization through practical techniques well-founded in economic theory. The authors, comprising some of the most influential applied international economists of their generation, use cutting-edge models to develop empirical approaches to critical aspects of economic interchange. These approaches are developed and explained carefully with the goal of making them accessible to a wide audience.

Chapter 5: Labor Market Structure and its Influence on Trade-Related Outcomes: Some Initial Findings

Carl Davidson and Steven J. Matusz

Subjects: economics and finance, international economics, methodology of economics

Extract

Carl Davidson and Steven J. Matusz 1. INTRODUCTION The fact that international trade affects labor market outcomes is never debated. It is generally accepted that the pattern of trade influences the composition of employment within a country as well as its wage structure. However, the exact nature of the link between trade and labor market outcomes is often the center of debates. Does trade create or destroy jobs? Does it affect overall employment? Have changes in trade and/or trade policies had a significant impact on the distribution of income? If so, what is the nature of the impact? While tremendous resources have been devoted to these questions, none of them have been truly resolved. There is significant disagreement in the public about trade’s impact on job opportunities and in academic circles there are several recognized theories about the link between trade and wages. Thus the debates continue. In contrast, there has been very little attention paid to the manner in which the structure of the labor market itself affects trade-related outcomes. This is somewhat surprising given that labor market institutions vary greatly across countries. Jobs last longer in Europe and Japan than they last in the United States (Freeman, 1994) and the average duration of unemployment is lower in the US than it is in most European countries. The implication is that labor markets in the US are characterized by greater turnover than their European counterparts (see, for example, Nickell, 1997; Haynes, Upward and Wright, 2000; or Greenaway, Upward and...

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