The paper develops a unified general equilibrium model including savings with overlapping generations, investment and search unemployment. Long-run analytical results for the small open economy identify capital accumulation as a prime transmission channel. The effects of integration on unemployment, however, depend importantly on the nature of wage taxation and unemployment compensation. As a separate methodological contribution, we extend a dynamic CGE model for Germany to allow for search unemployment of high- and low-skilled labour. Simulating the effects of Eastern EU enlargement, we find quantitatively small effects of integration but more pronounced labour market effects from immigration.
Finite lives search unemployment capital accumulation trade immigration