Maksim Belenkiy, David Riker


In this article, we review recent theoretical and empirical studies that link international trade flows and trade policies to aggregate (economy-wide) unemployment rates. The theoretical models demonstrate that there is a complex and often ambiguous relationship between trade and unemployment: whether trade increases or reduces unemployment rates depends in a complicated way on the industry composition of a country’s output and on differences in labor market frictions across industries and countries. The empirical studies, on the other hand, offer a story that is simpler and fairly consistent: they generally find that an expansion in international trade reduces a country’s aggregate unemployment rate in the long run.