Nordic Economic Policy Review

Globalization, labour market institutions and wage structure

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The Nordic Economic Policy Review is published by the Nordic Council of Ministers and addresses policy issues in a way that is useful for in-formed non-specialists as well as for professional economists. All articles are commissioned from leading professional economists and are subject to peer review prior to publication. The review appears twice a year. It is published electronically on the website of the Nordic Council of Ministers: www.norden.org/en. On that website, you can also order paper copies of the Review (enter the name of the Review in the search field, and you will find all the information you need). Managing Editor: Professor Torben M. Andersen, Department of Economics, University of Aarhus, Denmark. Special Editors for this volume: Research Professor Erling Barth, Institute for Social Research, Oslo, Norway and Professor Kalle O. Moene, Department of Economics, University of Oslo, Norway.



Efficiency gains from trade and labor market outcomes

Does trade liberalization increase domestic unemployment? Does it lead to higher wage inequality? In this article, we draw lessons from combining two canonical frameworks: the heterogeneous firms trade model of Melitz (2003) and the search-and-matching labor market paradigm. We focus on productivity or efficiency gains from trade. We argue that trade liberalization is likely to lower the equilibrium rate of unemployment, but that its effect on wage dispersion is ambiguous. We discuss implications for the conduct of trade and labor market policies.


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