Davidson and Matusz provide much-needed theoretical underpinnings for understanding the labor market consequences of international trade. Traditional models of international trade assume that labor markets adjust instantaneously to trade shocks . Thus, these traditional theoretical models assume away the consequence of greatest concern to policy-makers: unemployment. Davidson and Matusz update international trade theory to include labor market dynamics and unemployment, and present empirical evidence to show the consistency between their theoretical predictions and actual outcomes. Their models are of more than academic interest. They allow the authors to document the effects of trade and trade policies on low-skilled workers in different countries with different labor market policies and institutions. Moreover, they provide important insights into the relative merits of policies such as trade adjustment assistance, wage subsidies, and job training in aidi! ng those displaced or otherwise harmed by trade liberalization.
