The effects of globalization on job choice andunemployment under labor search friction
Chihiro Inaba

September 2016
Discussion Paper No.1631

GRADUATE SCHOOL OF ECONOMICS
KOBE UNIVERSITYROKKO, KOBE, JAPANThe effects of globalization on job choice andunemployment under labor search friction*
Chihiro Inaba†

Abstract

Trade liberalization increases the import of foreign goods and makes local markets

more competitive. To survive the severe competition, local firms must improve the qualityof production factor, and employ more highly skilled workers than unskilled workers. An

increase in the demand for skilled workers encourages workers to pursue higher education.

However, the recent employment of highly educated workers is stagnant globally. Although
trade liberalization enhances the demand for skilled workers, it may not contribute toincreasing their employment.

I analyze how trade liberalization affects the local employment of skilled workers,

occupational choice, and wage inequality. Firms can always produce low-quality goods byusing only unskilled labor. If a firm succeeds in employing an appropriately skilled worker,
it can improve the quality of the goods it produces. However, due to are search friction,

matches are not always successful. If firms and workers fail to match appropriately, theunmatched skilled workers remain unemployed and the unmatched firms continue to

produce low-quality goods. With this knowledge, workers choose their occupations: andeither remain to be unskilled or lean skills. Trade liberalization raises the skilled wage rate
and the successful probability of matching, which encourages unskilled workers to learn

skill but increase the number of the skilled workers after trade liberalization. Therefore,
the unemployment rate of skilled workers may increase after globalization.

I would like thank to Noritsugu Nakanishi, Yunfang Hu, Kazufumi Yugami, Keisuke
Kawata, and Hiroshi Goto for their helpful comments and suggestions. All errors are
my own.
† Rokkodai-cho, Nada-ku, Kobe, Hyogo, 657-8501, Japan. TEL: +81-78-803-7247,
FAX:+81-78-803-6877, Email: chihiro.inaba01@gmail.com*

1. Introduction

The volume of world trade increased after World War II, and globalization increased
rapidly through various free trade agreements. Simultaneously, the level of education
also increased in many developed countries. In Japan, for example, the university
enrollment rate was approximately 15 % in the 1950s, increased to 51% in 2013. The
main reason for the increase in the university enrollment rate is the improvement ofhousehold incomes. Recently, the trend of globalization promotes firms to demand welleducated workers to survive severe competition by foreign firms. Some firms requires
people with the communication skills to negotiate with the foreign companies. Others
require those with a high education to advance ahead of the market competition. Many
countries introduce foreign language course work in compulsory education and invite
foreign engineers and businessmen to attend to these courses. Consequently, tradeliberalization accelerates the popularization of higher education.
How do the trend of globalization and the popularization of higher education affectthe domestic labor market? The results of basic survey of Japanese schools show thatthe university advancement rate has increased in Japan, but the employment rate is
flattening out. Furthermore, the employment rate of those who graduated from higher
education professional schools is also not increasing. Consequently, the recent trend of
globalization and popularization of higher education does not always get good effects on
the local labor market.
This article considers the relationship between popularization of higher educationand the employment rate from the aspect of international trade. In particular, I
investigates how globalization affects various types of jobs and the unemployment rate(and the employment rate). There are two symmetric countries that producedifferentiated goods with labor. I consider two types of labor: skilled and unskilledworkers. Unskilled workers are used for the production of the differentiated good andthe unskilled labor market is perfectly competitive. If a firm employs one skilledworker, it can raise the quality of its differentiated goods and can earn higher profit.
However, there is information asymmetry between firms and skilled workers in theskilled labor market. Firms and the skilled worker do not always match. If thematching between a firm and skilled worker fails, the firm must produce a lower
quality of their differentiated good and the skilled worker is unemployed. If thematching between a firm and a skilled worker succeeds, the firm can produce a higher
quality of the differentiated goods, and workers earn the higher negotiated wage
income. I use the Diamond-Mortensen-Pissarides search and matching model toconsider the matching between firm and skilled workers. Workers can choose to beeither skilled or unskilled. If one chooses to be unskilled, he or she works as unskilledlabor and earns a wage determined by the market. However, if he or she pursues an
education and masters a skill, he or she can negotiate with a firm. As long as thematching with a firm succeeds, he/she negotiates the wage with the firm.
Next, I consider international trade between two symmetric countries;
additionally, there are ice-berg costs for exporting the differentiated goods to theforeign country. Only the firms producing high-quality differentiated goods can export
their goods, whereas low-quality firms provide their goods to the local market. Because
recent empirical articles support this assumption, I adopt it in my model. When iceberg costs decrease, the bargaining wage rate and the demand of the skilled workers
increase. Trade liberalization makes it easy to export differentiated goods for the highquality firms, and the profit of the high-quality goods increases. Since the profit isdistributed to a firm and skilled workers through negotiation, the increase in profit
leads to an increase in the bargaining wage rate. The increase in the profit of the highquality goods attracts the low-quality firm to enter the search for the skilled workers.
Therefore, the demand of the skilled worker increases. The increase of the bargaining
wage rate and the demand for skilled workers increases the incentive to become theskilled worker. However, these changes raise the total income of a country, and thevalue of unskilled workers also increases. The effect of globalization is ambiguous on
worker’s job choices. However, I find it possible that globalization may increase
unemployment.
My study relates to the literature of international trade with the labor-searchmodel. Helpman et al. (2010a,b) and Ferlbermayr et al. (2011) introduce the labor
search model in the trade model and investigate the effects of globalization on local
unemployment. They showed that there are two contradictory effects international
trade on the labor market. First, globalization increases the average productivity of theindustry through the selection of low-productivity firms, which increases employment.
Secondly, since an increase in the average productivity means an increase in theeffective firms, the rise in employment is not much greater than the increase inproduction. Consequently, the employment contracts. Their model does not determine
the firm’s productivity in the labor market. In their model, the lottery determines the
productivity of a firm. A firm with relatively high productivity negotiates with skilledworkers, whereas another firm with relatively low productivity exits from the market.
Although the entry and exit of a firm depend on the productivity lottery and labormatching, productivity and the industry structure are not affected as much by labormatching. Ara and Furusawa (2012) created a model in which the productivity of a firmand the industry structure are determined by matching in the market. They consider
the matching problem between upstream and downstream firms. If matching between
upstream and downstream firms is a success, they jointly produce high-quality goods
and earn high profits. I follow their matching system, but I focus on matching between
firms and workers.
This article also relates to the choice between skilled and unskilled workers.
Development economics investigates the literature on the dual labor markets. Zenou(2008) introduced the labor search model into the skilled labor market and investigated
the worker’s job choices between skilled and unskilled workers. Some may argue thatthe unemployment problem with the unskilled workers is more important than that ofskilled workers. However, Zenou noted that the laws of regarding skilled workers arestricter and that their position is more affected by policy change than that of unskilledworkers. Because I focus on the relationship between the popularization of higher
education and the low employment rate of highly skilled workers, it is reasonable toconsider the unemployment problem of skilled workers. Zenou addresses this problem
only with a partial equilibrium and in an autarky economy. I expand his model into thegeneral equilibrium and consider the effect of globalization.
The remainder of the paper is organized as follows. Section 2 explains the base of
the model and the equilibrium under autarky. Section 3 analyzes the effect of
globalization. Section 4 concludes with a summary and a discussion of future research.

2. The model

2.1 Preference

Consumer preferences are identical across all countries and are modeled by thefollowing utility function:
=
where
and

∈

( )

( )

is the consumption of the variety ω,

d

,

(1)

>1

( ) denotes the quality of the variety,is the set of the variety of the differentiated goods.

is is the elasticity of

substitution between any two varieties. From Eq. (1), the demand of each variety isgiven by( ) ( )

( )=
where

( ) is the price of the variety,(2)

is total income, anddenotes the priceindex of all of the varieties.
≡
The quality of the variety,∈( ) ( )d(3)( ), is determined by whether a matching between afirm and a skilled worker is successful.
( )=
where

1,
1
,

if matched sucessfully(4)

if mismatched∈ (1, ∞) is a parameter.

2.2 Production

Each good is well differentiated and produced by a continuum of monopolists, each firmchoosing to produce a different variety. There areunits of labor andunits offirms; the number of firms in production is endogenously determined by free entry.

Regardless of quality, we assume that the production of each variety requires anunskilled worker. A firm pays an unskilled worker a wage,
wage as a numerà ire,

. To simplify, we set the= 1. The number of unskilled workers is denoted by , which

is determined endogenously in the model.
To raise the quality of a variety, a firm must match with a skilled worker. I
assume that search friction exists in skilled labor market. A firm and a skilled worker
are randomly matched, but the matching process is not always successful. Only a small
fraction of< minof matched pairs,− ,of firms and skilled workers find their pairs. The number, is also endogenously determined in the model, and the propertiesof matching technology are detailed in section 2.3.
When successfully matched, firms and skilled workers jointly create a high-quality
variety( ) and obtain the joint profit ( ). If a firm cannot match with skilled-worker, the firm produces a low-quality variety
obtains the profit( ) only with unskilled workers and( ). Therefore, the demands and profits of both high- and low-

quality firms are given by the following equation:
( )=

( )

,

( )=

( ) = [ ( ) − 1] ( ),
where

and

( )

( ) = [ ( ) − 1] ( )are the price of the high- and low-quality goods. From a firm's profit

maximization, we obtain the following pricing rule:( )= ( )=−1

Notice that the price is identical between the high- and low-quality firms.
In Eq. (5), the products and operating profits of high- and low-quality firms are
rewritten as follows:

(5)

−1

=

=
Notice

+
+

−
−

,

=
,

=

−1

+
+

(6)

−

(7)

−

⁄ = ⁄ = . In other words, γ denotes the differences of products and profits

between high- and low-quality firms.

2.3 Labor markets

Labor markets are segmented into skilled- and unskilled-labor markets. A skilledworker masters a high level of skills in his or her education and matches with a highquality firm. The wage of skilled workers is determined through the bargaining withthe matched firm. However, search friction exists between firms and skilled labor in
the market. Workers cannot always match with high-quality firms. If a worker fails tomatch with a firm, he or she is unemployed. When a skilled worker is unemployed, heor she must seek a firm that is searching and obtains unemployment insurance
Unemployment insurance.

is financed by the lump-sum tax collected from skilledworkers and unskilled workers.
On the other hand, unskilled workers do not pursue an education, and engage inproduction activity at both high- and low-quality firms. They have no risk of
unemployment and earn

= 1. When an unskilled worker obtains an education, he or

she can master a high level of skill and enter the skilled-labor market.
Section 2.3.1 explains the structure of the skilled-labor market. Next, Section 2.3.2
describes the unskilled-labor market and the worker’s job choices.

2.3.1 Skilled labor market

I assume that search frictions exists in skilled labor market, and use the DiamondMortensen-Pissarides (DMP)1 search-matching framework to model these frictions. In
the DMP model, a matching function describes a process in which a job seeker applies
for a job vacancy posted by firms and negotiates an employment agreement. The
number of successful matching between firms and skilled workers isdepends on the number of vacancies−

and job seekers≡. Suppose that

− − , we define thefollowing matching function:
≡
where

( ,

(8)

− )

(⋅) is increasing in its arguments, concaves and homogenous of degree 1.

When unemployment

increases, it is easier for searching firms to match with thebest workers in the labor market. Therefore, an increase in unemployment

raisesthe possibility of matching. Similarly, an increase in low quality makes it easy forworkers to find jobs, and then, the possibility of matching increases. From theassumption of homogenety of degree 1 for the matching function, I can rewrite thepossibility of matching as a function of a ratio of unmatched firm and unemployment,≡− ⁄as follows:

( ,
( ,

−

− )
− )

≡

( ), for unmatched firms(9)≡( ), for unemployment(10)

For unmatched firms, an increase in the ratio of unmatched firms and workers
means that there are many rival firms in the labor market. Since this situationencourages competition among unmatched firms, the possibility of matching for

1

See B. Petrongolo and C. Pissarides (2001).

unmatched firms decreases. Therefore, I obtain d ( )⁄d < 0. On the other hand, alarge

means that it is easier for a worker to find a firm. An increase inpossibility of matching for unemployment, which is implicated by dSuppose that a fraction

raises the( )⁄d > 0.

∈ (0,1) of matchings is destroyed by exogenous shocks atevery period.
A high-quality firm and a skilled worker that succeed in matching negotiate awage for skilled worker. Both the firm and the worker set a skilled worker wage so that
their ex post situation is better than that of ex ante negotiation. To consider thenegotiation problem, I must know the values of high and low-tech firms, skilled andunskilled worker. I set the following Bellman equation:

where

−

+ [ − ]+=+( )[ − ] +

(12)

=

−

+ [ −

]+

(13)

=

+

( )[

− ]+

(14)

is the value function of a high-tech firm,tech firm,

is the value function of a skilled worker,

unemployment,

(11)

=

is the rental rate,is the value function of a lowis the value function ofis the lump-sum tax, and the superscript dottedvalue is the dynamics of the value. A high-tech firm earns a joint profit
value

by employing a skilled worker but has to pay the worker

worker faces a risk of destroying the matching at rate

and obtains. The high-tech. If the high-tech firm suffersfrom destroying the matching, the firm cannot produce the high-tech well and obtains
the value

instead.

A low-tech firm produces a low-tech good with only unskilled workers and earns a
profit. To improve the quality of the good, low-tech firms must search for a skilledworker in the labor market. The searching firm can find a skilled worker at thepossibility of( ). Once the firm succeeds in matching with a skilled worker, it can

produce high-tech goods and earn profit. Suppose that free entry for firms areallowed and that a new firm has to pay a fixed costfor entry, whereby labor unit. Therefore, the free entry condition becomes
firms,is measured

and the number of all=, is determined.

A skilled worker who successfully matches with a high-tech firm obtains a wage
and pays a lump-sum tax
skilled worker lose

. However, matching is destroyed at possibility

but obtain the value of unemployment

obtain unemployment insurance. Unemployed workers

and seek a job at every time. Unemployed worker

can match a high-tech firm at possibility
worker, and( ) and can obtain the value of skilled.

In each period, the total surplus is shared through a generalized Nash-bargaining
process between high-tech firm and skilled worker. The total surplus is the sum of thesurplus of skilled worker,( ) − , and the surplus of the high-tech firm,( )− .I

determine the wage in the following problem:(15)∈ arg max[ ( − )] [ ( ) − ]where∈ (0.1) is the bargaining power of the skilled workers.

Differentiating with respect togives the first order condition:[ ( ) − ] = (1 − )[ ( ) − ]To focus on the analysis of a steady state, I set(13), (14), first order condition, and
=

−

=

=

= . Using Eq. (11), (12),gives the following equation:+ (1 − ) + [ − +

+ ( −

)]

(16)

where= ⁄ . This equation is called the “Wage determination condition.” Whenislarge, a worker can find a job more easily and requires him or her to raise his or her
wage in bargaining. Since the equation has many endogenous variables, I cannot
clarify the relationship between wage

and job-opening-to-application ratio.

Next, I consider the labor demands of firms. Using Eq. (11), (12), and free entry
condition=

gives another equation:
=

+

+
[− +
( )

−

(17)

]

This equation is called as the “Job creation condition.” Whenis high, severe

competition exists among firms, which makes difficult for firms to find one skilledworker. Under these circumstances, firms do not want to raise the bargaining wage.

Similarly to wage determination, this equation has endogenous variables and does notgive the relationship between

and.

In the steady state, the number of pairs that break the matching must be equal to
the number of pairs that newly match. Thus, the following relationship exists:
=
Using

=

+

+

( )

and rearranging the equation for

unemployment:=, I obtain the number of

( − )
( )+

(18)

2.3.2 Unskilled labor market
Unskilled workers obtain wage

= 1 at every time. Each unskilled worker has two

options and chooses one at the beginning of time. The first option is to remain an
unskilled worker. The second option is to obtain an education and become a skilledworker. I assume that an unskilled worker cannot search directly for a job in theskilled labor market but must first be unemployed in the skilled labor market. Under
this assumption, an unskilled worker chooses the following two values: one is the valueof not being educated and obtaining a stable job and the other is the value of being
educated and unemployed and finding a high-paying job. If an unskilled worker decides
not to obtain an education, he or she receives a wage of the unskilled job w = 1 andmust pay the lump-sum tax. Therefore, the expected wage income for the unskilledworker becomes (1 − )⁄ . On the other hand, the value of the educated worker equals
to the expected value for unemployment:. Using Eq. (13) and (14), the condition of

job choice for the unskilled worker is shown by the following equation.
( )− +( + )( )+ +(19)=1−

2.4 Equilibrium

To describe the overall model, I have to derive some endogenous variables: total
expenditure, profitsand. First, the total expenditureis the sum of the wage

income for all workers. From the definition of each worker in the last section, the total
expenditureis calculated as follows:≡ ( − )+=+ (1 − )+Using Eq. (18), the total expenditure is rewritten as follows
=

( )

+

+
( )+

( )

( − )

(20)

Next, the profit for a high-tech firm
the total expenditure
(20),

and

and a low-tech firmin Eq. (7) consists ofand the number of the matching firms. Using Eq. (18) andin Eq. (7) are calculated as follows:=[ ( ) + +
( )+

=

( )

]

(21)

( ) + + ( )
( )+

(22)

Substituting Eq. (21) and Eq. (22) into Eq. (16), I obtain the new wage determination
equation which is described by only two endogenous variables the recruit rate
the wage income for a skilled worker( + )γ=( )+:+ (1 − ) ( ) γ ( ) +( + ) γ ( )+− (γ − )( + )

and

( )

( ) + ( + )(1 − )++ (1 − )

+

( − )

(23)

+ ( )
−
( )+

−

+

On the other hand, substituting Eq. (21) and Eq. (22) into Eq. (17) gives me the new job
creation condition which is described only by two endogenous variables=[ ( ) + +
( )+

( )

+
−
−
( )

]

and

:

−

( ) + + ( )
( )+

(24)

+

Since the wage determination equation in Eq. (23) and the job creation condition in Eq.
(24) have non-linear relationship between
andand, it is difficult to analytically derivefrom the above two equations. I investigate the relationship between
from these two equations. First, I can show2 by the numerical calculation that

there is a positive relationship between

2

and

and

in the Wage determination equation

I use the following parameter in the numerical calculation:.
= 0.1, ( ) =.

= 0.5, = 200,==

if the quality gap between high- and low-tech firms
describes the relationship between
offers-to-seekers ratioandis adequately large. Figure 1. The horizontal axis indicates the job-

, and the vertical axis denotes the bargaining wage rate

Figure 1, the Wage determination equation has an increasing curve of
job-offers-to-seekers ratio. In. The large

large indicates that it is easier for unemployed people tofind jobs in the skilled labor market. The unemployed people require a higher wage
rate for a firm in the bargaining process even if the bargaining between them breaks
down.
On the other hand, the Job creation equation in Eq. (24) describes the free entry
condition for firms. From the free entry condition, the bracket in the third term of theequation becomes the following:−−( ) + + ( )
( )+

+

=

( )[ − ]is the disparity between the values of a high- firm low-tech firm. If the disparity

is negative, there are no firms to bargain with a skilled worker. Therefore,

to be positive so that all firms have incentive to become high-tech firm. Since
depends on both the job-offers-to-seekers ratio
restrict onandas follows:−

I restrict on

and

>0 ⇔

<

(

and the wage rate

has

−

−

, I have to− 1) ( ) + ( − 1)( )so that the inequality is satisfied. If the quality gap γ isadequately large, the equilibrium values ofandsatisfy the inequality. When theinequality is satisfied, the job creation equation in Eq. (24) is a decreasing function of
the job-offers-seek ratio. A largemeans that the labor market is more competitive

for firms. Severe competition with rival firms reduces the possibility that a firmappropriately matches with a skilled worker and extends the term of the search. Since
it is difficult for the firm to raise the bargaining wage rate
condition has a negative relationship between

and, the job creation. In Figure 1, the job creation

equation depicts a downward sloping curve. An equilibrium of the closing model,
and

∗

∗

is solved by the interaction between the Wage determination condition and the

Job creation condition in Figure 1.

Figure 1: Equilibrium in the skilled labor market
When

∗

and

∗

are determined, the other variables are also determined. From Eq.

(19) and the definition of the lump-sum tax,
workers= ( + ) , the number of unskilled

is characterized as follows:∗( ∗) ∗ + ( + )∗ ( ∗) + +=1−∗( ∗) +∗( ∗) +−∗+( ∗) + +Finally, the number of the unemployment is determined by Eq. (18).

3. The effects of globalization(25)

3.1 Effects on the skilled labor market

I investigate the effect of globalization on a worker’s job choice and the the number of
unemployment of a country. There are two symmetric countries with the same
preferences, production technology, number of workers, and characteristics of the labormarket. I assume that the systems of the labor market are independent from eachother. These assumptions do not change the job choice condition in Eq. (25) and theunemployment equation in Eq. (18). Since the both countries produce differentiatedgoods, trade liberalization causes the exports of the differentiated goods to each other.
Suppose that high-tech firms only export their goods and that it costs an ice-berg type
tariff≥ 1 to exporting goods. The price of the exporting goods is as follows:≡−1

A household in each country can consume three types of goods: domestic high-techgoods, importing high-tech goods, and low-tech goods. The price index is modified asfollows:=−1[ (1 +) + ( − )/ ]High-tech-good firms produce domestic goods and goods to export and earn thefollowing (joint) operating profit for these:=(
where Γ = γ(1 + τ− )+ ( − 1) =

Γ[
Γ

( ) +
( )+

]

). On the other hand, the low-tech firms sell their goods only todomestic consumers. The profits for low-tech firms are as follows:= ⁄ΓOpening international trade changes the two conditions for the skilled labor market in
Eq. (23) and (24) as follows:( + )Γ

( )++ (1 − )=− (Γ − )( + )( )( ) + ( + )(1 − )++=+ (1 − ) ( ) Γ ( ) +( + ) Γ ( )+(26)(Γ − )
+ ( )
− −
(
)
Γ
+

Γ[ ( ) + +Γ ( )+

( )

]

−

−

+
−
( )

+
( ) + + ( )Γ ( )++(27)

I consider a situation where the two countries simultaneously reduces the tariff(increasing Γ). The reduction in tariff directly expands the demand for the imported
goods and raises the operating profits for the exporting firms. On the other hand, thelow-tech firms face a reduction in operating profit. Since an increase in profits for hightech firms leads an increase in joint profit for high-tech firm and skilled worker, thebargaining wage rate increases. This channel affects both the Wage determination
condition and the Job creation condition. I technically show the result in Appendix 1.
Figure 2 shows that the two conditions shift to the top. This result means the increasein the bargaining wage.

Figure 2: Trade liberalization and the skilled labor market

The effect on the job-offers-to-seekers ratio

has two channels. Since tradeliberalization increases the possibility the higher wages for skilled workers, the skilledworker require a firm to increase its wages. If the firm suggests the same wage as theformer wage before reducing the tariff, a skilled worker break the negotiation andchooses to remain an unemployed and search for a firm which suggests with a betterwage rate. This channel reflects the shift in the wage determination condition in Eq.
(26) and forces the job-offer-to-seekers ratio

to reduce. However, trade liberalization

attracts firms to enter into the export market for higher profit. Since the entry into theskilled labor market increases, the job-offer-to-seekers ratio

to increase. This

channel reflects a shift in the Job creation condition in Eq. (27).
Which of the two channels is largeer is determined by the degree of the shift in thewage determination condition and the job creation condition. Totally differentiating thetwo condition and evaluating them at d = 0 gives that the Job creation condition
shifts upwards more than the wage determination condition. I show the detail proof in
Appendix 2. Therefore, trade liberalization increases the job-offer-to-seekers ratio.

3.2 Effects on workers’ job choice

I consider the effects of trade liberalization on workers’ job choice. Although the
reduction in

directly affects the job choice condition in Eq. (25), the condition ischanged indirectly thorough a shift inand. The Left-Hand-Side (LHS) in Eq. (25)is the value of unemployment. Totally differentiating the LHS gives the following:d[LHS] =When( + )( − )
( )′
( )
d +
d
[ + +
[ + +
( )]
( )]

> , the above equation is positive. If a firm suggests<

to a skilledworker, the worker breaks the bargaining process and searches for another firm. In

equilibrium, the bargaining wage has to be larger than the unemployment insurance:> . The positive effect reflects that the increase in both the job-offers-to-seekers
ratio and bargaining wage raises the chance of a high-paying job and that it isadvantageous to remain unemployed. If the Right-Hand-Side in Eq. (25) is constant,the effect on the LHS indicates that globalization increases the number of the unskilledworkers.
On the other hand, the Right-Hand-Side (RHS) in Eq. (25) is the value of an
unskilled worker. Totally differentiating the RHS gives the following:d[RHS] =( )+ +
+
+

where

( + )
( )′
[ ( )+( )+( )+( ) + 1 + ( )]d

( )]

( + )
( )+
′( )
( )+ + [ ( )+
( )+

[

( )

( )]

d

( ) ≡ ⁄( − ). The effect of globalization on the RHS depends on

the sign of d

and

and

is positive. Due to the positive d , the effect of globalization decreases

the number of the unskilled workers. Considering the effect on the LHS, globalizationinduces the ambiguous effects on the workers’ job choices. As mentioned in Section 3.1,
trade liberalization raises the possibility of matching and the bargaining wage. These
effects increase the value of remaining unemployed and the number of theunemployment increases. On the other hand, globalization also increases the
production of differentiated goods and raises the demand for the unskilled workers.
This effect raises the value of unskilled workers and decreases the number of
unemployment. This model cannot solve the total effects on the unemployment
analytically. However, I show the possibility that globalization may increase thenumber of unemployment. Other literature also shows the result of increase in
unemployment. I focus on workers’ choices in jobs and derive this result.

4. Conclusion

This article analyzes the effects of globalization on the worker’ choice of jobs andemployment. I assume that search friction exists only in the skilled labor market andthat workers can choose to be skilled or unskilled worker. If a firm succeeds inmatching with skilled worker, it can raise the quality of its differentiated goods. Only
high-tech firms can export their goods to foreign countries. Trade liberalization among
two symmetry countries increases the profit of the export goods, which raises skilledworker’s wages and the demand for skilled workers. These effects attract both skilled
and unskilled workers. I obtain ambiguous effects of globalization on the workers’
choices of job. However, I find a possibility where the globalization promotes the
popularization of high education and the unemployment of skilled workers. Moreover,the increase in skilled worker expands the wage inequality between skilled andunskilled workers.
I have two possible directions for future research. The first pertains to the problem
of workers’ choice of jobs. I assume that each skilled worker has the same ability if heor she pursues a higher education. However, workers possess heterogeneous abilities.
In Japan, there has been pointed out that decrease in the quality of workers who
pursue the university education. The assumption of heterogeneous workers isimportant in reflect reality.
Second direction of research would be to consider heterogeneous countries. My
model assume symmetric countries, but this assumption does not depict the real world.

Since I adopt a search-matching model in this study, it is difficult to consider
heterogeneous countries. Although heterogeneous countries could complicate themodel , the implication of heterogeneity gives us the new insight into the international
trade and labor market literature.

Appendix 1

First, I totally differentiate Eq. (26) and Eq. (27) and have the change in theapplication ratio to zero (d = 0). Next, arranging it gives the change of the bargaining
wage by globalization (Γ ↑):
Γ
=

│

]
( + )[ ( + ) ( )
( )+
( )+
( )+
+
[( + ) Γ ( ) + + (1 − ) ( ) Γ ( ) + − (Γ − )( + ) ( )] Γ ( ) +

>0

(A.1)
d
│
dΓ

=

( ) + ( )+
Γ ( )+>0(A.2)

These equations mean that the Wage determination condition and the Job creation
condition shift upward by trade liberalization.

Appendix 2

Subtracting the later from the former equation gives
Γ

│

−

d
│
dΓ

=ℂ×

− (1 − − ) ( ) − 1 − ( + ) ( + )−(1 − )( + )Γ ( ) − (1 − ) ( )Γ ( ) − (1 − )− (1 − )[ Γ ( ) +( + )+ Γ

( )+

( )
( )]

<0

where ℂ is the positive term. From the result, globalization affects the Job creation
condition larger than the Wage determination condition. Therefore, I can show that
globalization increases the application ratio,.

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