Abstract

In an era of globalisation, patterns of economic growth and employment will depend critically upon domestic labour market conditions. This paper presents empirical evidence on how labour market regulations might interact with expanded trade. We present numerical model simulations of recent trade reform proposals for Chile. Firstly, we analyse how these reforms affect the economy in a perfectly competitive labour markets framework, then we modify this by introducing various kind of labour market imperfections considered relevant in this country. Previous research efforts usually focused separately either on the significance of trade, or on the effect of labour market regulations as explanations for variations in the wage gap and labour demand. Our results show that interactions between labour market regulations and expanded trade may explain the Chilean widening wage gap. © 2002 Society for Policy Modeling. Published by Elsevier Science Inc. All rights reserved.