Trade liberalisation, technical change and skill-specific unemployment

The aim of this paper is to formalise a two-country model of trade liberalisation and technical change with heterogenous firms and search-and-matching frictions in the labour market. By considering different sectors and factors of production we allow for comparative advantages and study the trade and technology effects within and between sectors on wages and employment of skilled and low-skilled workers. Technical change together with inter-sectoral trade has distributional consequences across the labour force, favouring the skilled against the low-skilled workers. Intra-sectoral trade counteracts as it increases the demand for low-skilled workers, too. The overall effects on wages and employment of skilled and low-skilled workers depend on the extent of technical change, inter-sectoral trade and intra-sectoral trade.