Comparative Advantage and Skill-specific Unemployment

We introduce unemployment and endogenous selection of workers

into different skill-classes in a trade model with two sectors

and heterogeneous firms. This allows us to identify three different channels through which trade liberalization can affect unemployment: specialization, changes in productivity, and mobility. These three channels may work in opposite directions and their relative importance depends on the type of trade (intra-industry trade vs. inter-industry trade) and the skill-class of a worker.

We show that the gains from

trade are distributed very unequally. When a country that's skilled worker abundant opens up to trade with a country that is unskilled worker abundant, the biggest losers are the skilled workers in the import sector in the skill abundant country. However, average unemployment among skilled workers goes down, while average unemployment among unskilled workers goes up.