We embed a model of the labour market with sector-specific search-and-matching

frictions into a Ricardian model with a continuum of goods to show that trade reduces

unemployment in countries with comparative advantage in sectors with more efficient

labour markets and leads to higher unemployment in countries with comparative ad-

vantage in sectors with less efficient labour markets. We test this prediction in a panel

dataset of 107 countries covering the period 1995-2009 and find that the data support

this theoretical prediction. Our results also help reconcile the apparently contradicting

evidence in the empirical literature on the impact of trade on unemployment.