The Effects of Trade on Unemployment: Evidence from 20 OECD countries

Abstract

This study empirically investigates if international trade has an impact on aggregate unemployment in the presence of labour market institutions. Using data for twenty OECD countries for the years 1961-2008, this study finds that an increase in trade leads to higher aggregate unemployment as it interacts with rigid labour market institutions, whereas it may reduce aggregate unemployment if the labour market is characterised by flexibility. In a country with the average degree of the labour market rigidities, an increase in trade has no significant effect on unemployment rates.