While most standard economic models of international trade assume full employment, Carl Davidson and Steven Matusz have argued over the past two decades that this reliance on full-employment modeling is misleading and ill-equipped to tackle many important trade-related questions. This book brings together the authors' pioneering work in creating models that more accurately reflect the real-world connections between international trade and labor markets. The material collected here presents the theoretical and empirical foundations of equilibrium unemployment modeling, which the authors and their collaborators developed to give researchers and policymakers a more realistic picture of how international trade affects labor markets, and of how transnational differences in labor markets affect international trade. They address the shortcomings of standard models, describe the empirics that underlie equilibrium unemployment models, and illustrate how these new models can yield vital insights into the relationship between international trade and employment.
This volume also includes an indispensable general introduction as well as concise section introductions that put the authors' work in context and reveal the thinking behind their ideas. Economists are only now realizing just how important these ideas are, making this book essential reading for researchers and students.
Carl Davidson is professor of economics and chair of the Department of Economics at Michigan State University. Steven J. Matusz is professor of economics at Michigan State. They are the authors of "International Trade and Labor Markets: Theory, Evidence, and Policy Implications".
PREFACE ix ACKNOWLEDGMENTS xv CHAPTER 1: Our Motivation 1 PART 1: NEW INSIGHTS FROM "OLD" TRADE THEORY 25 Introduction to Part 1 27 CHAPTER 2: The Structure of Simple General Equilibrium Models with Frictional Unemployment 33 CHAPTER 3: Trade and Search-Generated Unemployment 60 PART 2: COMPLICATIONS 91 Introduction to Part 2 93 CHAPTER 4: Multiple Free Trade Equilibria in Micro Models of Unemployment 97 CHAPTER 5: Jobs and Chocolate: Samuelsonian Surpluses in Dynamic Models of Unemployment 110 CHAPTER 6: Long-Run Lunacy, Short-Run Sanity: A Simple Model of Trade with Labor Market Turnover 138 PART 3: EMPIRICS 159 Introduction to Part 3 161 CHAPTER 7: Trade and Turnover: Theory and Evidence 165 CHAPTER 8: Trade, Turnover, and Tithing 195 PART 4: ADJUSTMENT COSTS AND POLICY ISSUES 221 Introduction to Part 4 223 CHAPTER 9: Should Policy Makers Be Concerned about Adjustment Costs? 227 CHAPTER 10: An Overlapping-Generations Model of Escape Clause Protection 265 CHAPTER 11: Trade Liberalization and Compensation 292 CHAPTER 12: Can Compensation Save Free Trade? 321 PART 5: NEW INSIGHTS FROM "NEW" TRADE THEORY 349 Introduction to Part 5 351 CHAPTER 13: Globalization and Firm-Level Adjustment with Imperfect Labor Markets 355 CHAPTER 14: Outsourcing Peter to Pay Paul: High-Skill Expectations and Low-Skill Wages with Imperfect Labor Markets 388 INDEX 407
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