Schumpeterian unemployment, trade and wages

This paper develops a dynamic general equilibrium model of R&D-generated growth without scale effects and knowledge-based trade of higher quality products between two structurally-identical countries. A product replacement mechanism coupled with a time-consuming job-matching process generates Schumpeterian unemployment. A global reduction in tariffs stimulates innovation and growth. It also raises the relative wage of skilled workers, motivating more individuals to undergo skill upgrading. In addition, trade liberalization increases the unemployment rate of unskilled labor, but has an ambiguous effect on the economy-wide unemployment rate. (C) 2001 Elsevier Science BN. All rights reserved.