Labor market frictions impact welfare from tariff changes, study finds.
The article explores how changes in tariffs affect welfare in international trade. Previous models assumed a perfect labor market, but this study considers labor market frictions. The researchers found that labor market conditions can impact production costs and the likelihood of exporting goods. Unemployment rates also play a role in welfare changes across countries. By analyzing the effects of NAFTA and hypothetical scenarios with China's tariffs, the study shows that labor market frictions can bias welfare effects in trade models.