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This paper revisits the trade to unemployment nexus for Germany based on the estimation of a model featuring heterogeneous firms and search unemployment. We structurally estimate parameters that match the key moments of the German labour market. Our estimation and calibration are based on a single plant-level data source, that is, the IAB establishment and worker panel. The calibration shows that trade liberalisation reduces unemployment in the long run. In our counter-factual policy simulations, we focus on the effect of labour market policies on the trade and unemployment nexus and we explore how the magnitude of the effects differs under different bargaining regimes. Labour market institutions have stronger effects under collective bargaining. Compared with trade or the bargaining power of unions, the effect of unemployment benefits on unemployment turns out to be rather modest. |
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