International Trade and Labor Markets: Theory, Evidence, and Policy Implications

Davidson and Matusz extend the traditional analysis of international trade to allow for labor markets characterized by workers whose labor-market experiences are punctuated by spells of involuntary unemployment. They demonstrate that such extensions are easily accomplished and that they provide valuable new insights that withstand empirical scrutiny. And perhaps most importantly, argue Davidson and Matusz, such models offer the appropriate venue in which to carry out policy analysis aimed at determining the best way to compensate those who suffer economic loss as a result of changing trade patterns.