نهادهای بازار کار درونی در یک اقتصاد باز

The paper sets up a two-country asymmetric trade model with heterogeneous firms, search frictions and endogenous labor market institutions. Countries are linked by trade in goods and non-cooperatively set unemployment benefits to maximize national welfare. We show that more open and smaller economies have more generous unemployment benefit replacement rates as a larger fraction of the costs is borne by foreign trading partners. These results are in line with empirical stylized facts. Additionally, we find that the optimal level of unemployment benefits is independent from the level of unemployment benefits abroad and that non-cooperatively set unemployment rates are inefficiently high.

Countries differ dramatically with respect to the generosity of their labor market institutions. For instance, OECD data show that the average net unemployment benefit replacement rate varies between about 82% in Denmark to 8% in Italy.1 What are the determinants of these differences? Using data for OECD countries from 1961 to 2007, we present two stylized facts: the generosity of unemployment benefits is larger in more open economies and smaller in larger countries. This correlation holds unconditionally, but also survives conditioning on country effects or GDP per capita. It is both statistically and economically significant. So far, the literature has documented similar patterns for very general measures of government size (Rodrik, 1998) but not for the specific case of labor market institions. In this paper, we show that a plain vanilla combination of a workhorse trade model (Melitz, 2003) and the leading search-matching labor market paradigm (Mortensen and Pissarides, 1994), with governments choosing unemployment benefits non-cooperatively, yields implications that are consistent with these stylized facts.

Is there an optimal utility-maximizing level of labor market policies? This question is an old one from a labor market perspective. However, with the increased interdependencies between countries, this question has to be reevaluated. There is a quite substantial literature discussing whether more open countries have a larger welfare state. Others brought country size into the discussion: Smaller countries tend to trade more, and smaller countries have larger governments. The causality seems not to be fully sorted out yet.