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Heterogeneous workers, trade, and migration

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  • Heiland, Inga
  • Kohler, Wilhelm

Abstract

We analyze the welfare effects of trade and migration, focusing on two-sided horizontal heterogeneity among workers and firms. Horizontal (skill-type) heterogeneity among workers generates monopsonistic labor markets as well as within-firm wage inequality and an endogenous quality of worker–firm matches. In a model combining horizontal worker heterogeneity with monopolistic competition on goods markets, trade liberalization causes firm exit which raises wage markdowns and worsens the average quality of worker–firm matches. It also increases the degree of income inequality. Yet, aggregate welfare is higher under free trade than under autarky. Integration of labor markets leads to two-way migration between symmetric countries. Liberalizing migration has an ambiguous effect on the quality of worker–firm matches and income inequality, but it leads to lower wage markdowns and lower goods prices and thus to higher welfare in both countries. Our model advocates opening up labor markets simultaneously with trade liberalization.

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  • Heiland, Inga & Kohler, Wilhelm, 2022. "Heterogeneous workers, trade, and migration," European Economic Review, Elsevier, vol. 144(C).
    • Handle: RePEc:eee:eecrev:v:144:y:2022:i:c:s0014292122000265
    DOI: 10.1016/j.euroecorev.2022.104077
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    Cited by:

    1. Jha, Priyaranjan & Rodriguez-Lopez, Antonio, 2021. "Monopsonistic labor markets and international trade," European Economic Review, Elsevier, vol. 140(C).
    2. Heiland, Inga & Kohler, Wilhelm, 2022. "Heterogeneous workers, trade, and migration," European Economic Review, Elsevier, vol. 144(C).
    3. Gaelan MacKenzie, 2021. "Trade and Market Power in Product and Labor Markets," Staff Working Papers 21-17, Bank of Canada.
    4. Luca Macedoni, 2022. "Monopsonistic competition, trade, and the profit share," Scandinavian Journal of Economics, Wiley Blackwell, vol. 124(2), pages 488-515, April.

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    More about this item

    Keywords

    Two-way migration; Gains from trade; Heterogeneous workers;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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