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Unemployment of Skilled and Unskilled Labor in an Open Economy: International Trade, Migration, and Outsourcing

Authors

  • Richard A. Brecher,

    Corresponding author
    1. Department of Economics, Carleton University, Canada
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  • Zhiqi Chen

    Corresponding author
    1. Department of Economics, Carleton University, Canada
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    • For helpful comments and suggestions, we thank Keir Armstrong, Ehsan U. Choudhri, Vivek Dehejia, Hian Teck Hoon, Ngo Van Long, Adrian Wood, Zhihao Yu, Ting Zhang, and seminar participants at Carleton University, University of Manitoba, and University of Waterloo. Chen's research was financially supported by the Social Sciences and Humanities Research Council of Canada.


Brecher and Chen: Department of Economics, Carleton University, 1125 Colonel By Drive, Ottawa ON K1S 5B6, Canada. Tel: 613-520-2600 ext. 3765 (Brecher) and 7456 (Chen); Fax: 613-520-3906; E-mails: richard_brecher@carleton.ca and z_chen@carleton.ca.

Abstract

We show how international trade, migration, and outsourcing affect unemployment of skilled and unskilled labor, in a framework that integrates the Heckscher–Ohlin model of trade with the Shapiro–Stiglitz model of unemployment. Our approach allows us to analyze changes in not only aggregate unemployment, but also the distribution of unemployment between skilled and unskilled labor. As the analysis demonstrates, the unemployment rates of these two types of labor often move in opposite directions, thereby dampening the change in aggregate unemployment. Results depend on the source of comparative advantage, based on international differences in (for example) unemployment insurance or production technology.

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