This dissertation presents three essays examining the role that falling trade costs and the resulting agglomerations have on unemployment. In addition, the role of regional (or national) labor market characteristics on agglomeration patterns is also examined.; The first essay extends the Krugman (1991) new geography model to include asymmetries in regional labor markets. The particular labor market considered is a two-region variant of the Shapiro-Stiglitz (1984) model where the rate of job breakup or shirker detection may vary between regions. It is shown that in the presence of such asymmetries agglomeration can occur even in the absence of transport costs. Furthermore, when transport costs are present it can be determined in which region agglomeration is most likely to occur. The essay also examines the spatial pattern of unemployment in both the symmetric and asymmetric cases.; The second essay presents a two-country, two-sector new geography model where workers are imperfectly monitored is used to examine the relationship between falling trade costs and unemployment. It is shown that as trade costs fall over time the world naturally falls into an industrialized core and an agricultural periphery. Globalization has a positive effect on employment in the core in both the short and long term. The periphery suffers employment losses in the short term but can gain in the long term. The impact of labor market asymmetries on both the likelihood of agglomeration occurring in a specific country and unemployment is also examined.; The final essay extends the Krugman (1991) new geography model to include search frictions in the labor market. The particular labor market considered is a two-region variant of the Diamond (1982) model. It is shown that if the matching function exhibits constant returns to scale the pattern of agglomeration is identical to the full-employment model and there is no change in unemployment as a result of agglomeration. If the matching function exhibits increasing returns to scale agglomeration can be sustained no matter the level of trade costs and unemployment falls as a result of agglomeration. It is also shown that regions with higher rates of tenure will be more likely to receive an agglomeration.
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