Globalization and Labor Market Outcomes: Wage Bargaining, Search Frictions, and Firm Heterogeneity * We introduce search unemployment à la Pissarides into Melitz' (2003) model of trade with heterogeneous firms. We allow wages to be individually or collectively bargained and analytically solve for the equilibrium. We find that the selection effect of trade influences labor market outcomes. Trade liberalization lowers unemployment and raises real wages as long as it improves aggregate productivity net of transport costs. We show that this condition is likely to be met by a reduction in variable trade costs or the entry of new trading countries. On the other hand, the gains from a reduction in fixed market access costs are more elusive. Calibrating the model shows that the positive impact of trade openness on employment is significant when wages are bargained at the individual level but much smaller when wages are bargained at the collective level. JEL Classification:F12, F15, F16

This paper documents a robust empirical regularity: in the long-run, higher trade openness is causally associated to a lower structural rate of unemployment. We establish this fact using: (i) panel data from 20 OECD countries, (ii) cross-sectional data on a larger set of countries. The time structure of the panel data allows to deal with endogeneity concerns, whereas cross-sectional data make it possible to instrument openness by its geographical component. In both setups, we carefully purge the data from business cycle eects, include a host of institutional and geographical variables, and control for within-country trade. Our main nding is robust to various denitions of unemployment rates and openness measures. The preferred specication suggests that a 10 percent increase in total trade openness reduces unemployment by about one percentage point. Moreover, we show that openness aects unemployment mainly through its eect on TFP and that labor market institutions do not appear to condition the eect of openness.

More than 2000 years ago, the ancient Silk Road was a major trade link between the East and West. However, technological change and dramatic declines in transportation costs have since made it obsolete as container shipping and the advent of cargo flights have shifted trade from the surface to the sea or air. Nevertheless, China recently announced a new initiative that aims at establishing new connections between Europe and Asia, which are bypassing more modern transport routes in favor of railway connections. This special issue is dedicated to research related to this new initiative. ARTICLE HISTORY