TITLE:
International Trade and Unemployment in Less Developed Countries
AUTHORS:
Fernando Mesa
KEYWORDS:
Trade Reforms; Trade and Labor Markets Interactions; Demand for Labor.
JOURNAL NAME:
Theoretical Economics Letters,
Vol.2 No.5,
December
28,
2012
ABSTRACT: The main interest focus of this paper is the relation between international trade and the labour market, with an emphasis on the unemployment rate, and the allocation of workers among sectors. A general trade equilibrium model with three sectors is constructed for a less developed country. An informal and un-tradable sector is characterised by flexible wages, while the other two sectors are tradable, export and import sectors. The model imposes a binding minimum wage on unskilled labour and wage distortions on skilled labour. Comparative statics are used to analyse the effects on the labour market of an open economy, a rise in the minimum wage and a positive productivity shock in the export sector.