Working Paper 02-7
by Michael W. Klein, Scott Schuh, and Robert K. Triest

This paper is chapter 4 in our monograph, Job Creation, Job Destruction, and International Competition (W.E. Upjohn Institute for Employment Research, 2003). The chapter, which expands on the ideas advanced in Klein, Schuh, and Triest (2003), provides an extensive review of the literature that studies the connection between international factors, such as real exchange rates and trade agreements, and the domestic labor market. Until recently, the literature has focused on the effects of international factors on net employment at aggregate levels or in selected import-competing industries. In the long run, aggregate net employment largely is unaffected by international factors, whereas these factors have important allocative effects in the short and long run, both between and within detailed industries. Thus, it is appropriate to study the components of net employment – gross job creation and destruction – when measuring the impact of international factors on labor markets. Examining gross job and worker turnover associated with changes in international factors raises questions about the accuracy of prior estimates of adjustment costs associated with international factors because gross flows are an order of magnitude larger than net employment flows.

JEL classification codes: F4, J6

Keywords: gross job flows, real exchange rates, openness, adjustment costs, unemployment

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