GEP Research Paper 99/06

Wages and Unemployment: The Impact of Trade and Technology Under Different Labour Market Paradigms

Olivier Bontout and Sébastien Jean

Abstract

The aim of this study is to assess and compare the impact of trade and technology shocks under different labour market paradigms. We use a computable general equilibrium model, compatible with the new trade theories, and we assume alternatively that wages are flexible, that relative wages are rigid, and that wages are bargained (WS-PS model). 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. For unskilled labour, the labour market functioning boils down to a trade-off between real wages and employment.

Issued in April 1999.

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