ABSTRACT
This chapter analyses the labor-market effects of increased trade, in both products and factors of production, with other countries. The demand for a given type of labor is derived from conditions in the product market and the prices and productivities of other factors of production. Many European countries, in contrast, offer a range of 'Active Labor Market Policies' under which workers displaced, for whatever reasons, are the intended beneficiaries of training and employment subsidies. The chapter argues that falling barriers to international transactions tend to create a more elastic labor demand curve in an affected labor market. In all types of Active Labor Market Policy programs, the analysis found tends to be less successful in reducing the duration of unemployment in countries that strongly protect workers from being fired. The mix of reduced employment and wage loss associated with the leftward shift in labor demand depends on the shape of the market labor supply curve.
