WAGES AND UNEMPLOYMENT : TRADE-OFF UNDER DIFFERENT LABOUR MARKET PARADIGMS
The aim of this study is to assess and compare the impact of trade and technology shocks under different labour market paradigms. This is done using a stylised computable general equilibrium (CGE) model, compatible with the new trade theories. We assume alternatively that wages are flexible, that relative wages are rigid, and that wages are bargained (WS-PS model). This latter case appears as intermediary between both of the others, which correspond respectively to perfect flexibility and perfect rigidity of the wage structure. We find that the more rigid the wage structure is, the less favourable the effect on welfare is and the less important the evolution of income inequalities are. This "trade-off" between welfare and inequalities is quantified, and it is shown to be fairly independent of the nature of these asymmetrical shocks. For unskilled labour, the labour market functioning boils down to a trade-off between real wages and employment. We also find that the less substitutable the production factors are, the lower the employment-cost of a given correction in relative wages is, and the less costly a decrease in inequalities through a different labour market setting is in terms of welfare.
Labour market; International trade; Skilled-biased technical change; General equilibrium model
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