Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/85490
Authors: 
Botman, Dennis P.J.
Tieman, Alexander F.
Year of Publication: 
1999
Series/Report no.: 
Tinbergen Institute Discussion Paper 99-054/1
Abstract: 
We present an equilibrium-search model with heterogenous workers whosearch for a job in one of two sectors and who lose part of theirskills during unemployment. We show that an import tariff increasethe wage and the employment prospects in the protected sector. Thisresults in a labor market distortion because it changes thecomparative advantage of the least specialised workers. Trade reformresults in sectoral reallocation of workers which affects employmentin both sectors through quantity and quality effects and increasesunemployment persistently. Replacing the tariff by a wage-costsubsidy financed by means of lump-sum taxation prevents unemploymentfrom rising after trade has been reformed. However, giving a wage-cost subsidy to both sectors is cheapersince then comparative advantage of workers will no longer bedistorted, although unemployment will temporarily rise.
Subjects: 
Equilibirum-Search model
Comparative Advantage
Trade Reform
Spillovers
Persistence
Subsidies
JEL: 
F10
J20
J60
D13
D21
Document Type: 
Working Paper

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