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Unequal Effects of Trade on Workers with Different Abilities

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Author Info

  • Elhanan Helpman
  • Oleg Itskhoki
  • Stephen Redding

Abstract

In recent research, we have proposed a new framework for examining the determinants of income inequality, which emphasizes firm and worker heterogeneity and selection into export markets. In this paper, we use our framework to examine how wage inequality and unemployment vary across workers with different abilities. Both in the closed and open economy, the unemployment rate is decreasing in worker ability, whereas both the average wage and wage inequality are increasing in worker ability. Upon opening the economy to trade, however, intermediate-ability workers experience reductions in average wages and increases in unemployment rates relative to both lower and higher ability workers. (JEL: F12, F16, E24) (c) 2010 by the European Economic Association.

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Bibliographic Info

Article provided by MIT Press in its journal Journal of the European Economic Association.

Volume (Year): 8 (2010)
Issue (Month): 2-3 (04-05)
Pages: 421-433

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Handle: RePEc:tpr:jeurec:v:8:y:2010:i:2-3:p:421-433

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Cited by:
  1. Arntz, Melanie & Gregory, Terry & Lehmer, Florian, 2011. "Unequal pay or unequal employment? What drives the skill-composition of labor flows in Germany?," ZEW Discussion Papers 11-074, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. Marco de Pinto, 2012. "Unemployment Benefits as Redistribution Scheme of Trade Gains - a Positive Analysis," FIW Working Paper series 092, FIW.
  3. Yanhui Wu, 2011. "Managerial Incentives and Compensation in a Global Market," CEP Discussion Papers dp1066, Centre for Economic Performance, LSE.
  4. Schmerer, Hans-Jörg, 2012. "Skill-biased labor market reforms and international competitiveness," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 6(37), pages 1-39.
  5. Klein, Michael W. & Moser, Christoph & Urban, Dieter M., 2013. "Exporting, skills and wage inequality," Labour Economics, Elsevier, vol. 25(C), pages 76-85.
  6. Schmerer, Hans-Jörg, 2014. "Foreign direct investment and search unemployment: Theory and evidence," International Review of Economics & Finance, Elsevier, vol. 30(C), pages 41-56.
  7. Heid, Benedikt & Larch, Mario, 2012. "Migration, trade and unemployment," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 6(4), pages 1-40.
  8. Raphael Anton Auer, 2010. "Are Imports from Rich Nations Deskilling Emerging Economies? - Human Capital and the Dynamic Effects of Trade," Working Papers 2010-18, Swiss National Bank.
  9. Helpman, Elhanan, 2010. "Labor Market Frictions as a Source of Comparative Advantage, with Implications for Unemployment and Inequality," CEPR Discussion Papers 7707, C.E.P.R. Discussion Papers.
  10. Marco de Pinto, 2012. "Unemployment Benefits as Redistribution Scheme of Trade Gains - a Positive Analysis," MAGKS Papers on Economics 201210, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  11. Marco de Pinto & Jochen Michaelis, 2011. "International Trade and Unemployment - the Worker-Selection Effect," MAGKS Papers on Economics 201127, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  12. Schmerer, Hans-Jörg, 2012. "Foreign direct investment and search unemployment : Theory and evidence," IAB Discussion Paper 201204, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].

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