Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/73842
Authors: 
Felbermayr, Gabriel J.
Larch, Mario
Lechthaler, Wolfgang
Year of Publication: 
2012
Series/Report no.: 
Ifo Working Paper 134
Abstract: 
Recent theoretical literature studies how labor market reforms in one country can affect labor market outcomes in other countries, thereby rationalizing widely-held policy beliefs and empirical evidence. But what is the quantitative relevance of such spillover effects? This paper combines two recent workhorse models: the canonical search-and-matchingframework and the heterogeneous firms international trade model. Qualitatively, the framework confirms that labor market reforms in one country benefit its trading partners, replicating the stylized facts. However, when wages are bargained flexibly, the model quantitatively underestimates the correlation of structural unemployment rates across countries. This mirrors the well-known finding by Shimer (2005) by which thestandard search-and-matching model predicts too small fluctuations of unemployment rates over time. Introducing real wage rigidity remedies this problem.
Subjects: 
Spillover effects of labor market institutions
unemployment
international trade
search frictions
heterogeneous firms
JEL: 
F11
F12
F16
J64
L11
Document Type: 
Working Paper

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