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Inequality and Unemployment in a Global Economy

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Author Info
Elhanan Helpman
Oleg Itskhoki
Stephen Redding

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Abstract

This paper develops a new framework for examining the distributional consequences of internationaltrade that incorporates firm and worker heterogeneity, search and matching frictions in the labormarket, and screening of workers by firms. Larger firms pay higher wages and exporters pay higherwages than non-exporters. The opening of trade enhances wage inequality and raises unemployment,but expected welfare gains are ensured if workers are risk neutral. And while wage inequality is largerin a trade equilibrium than in autarky, reductions of trade impediments can either raise or reduce wageinequality.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0940.

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Date of creation: Jul 2009
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Handle: RePEc:cep:cepdps:dp0940

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Related research
Keywords: Wage Inequality; International Trade; Risk; Unemployment;

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Find related papers by JEL classification:
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution

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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Matilde Bombardini & Giovanni Gallipoli & Germán Pupato, 2009. "Skill Dispersion and Trade Flows," NBER Working Papers 15097, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Hartmut Egger & Peter Egger & James R. Markusen, 2009. "International Welfare and Employment Linkages Arising from Minimum Wages," NBER Working Papers 15196, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Maria Bas, 2008. "Trade, Technology Adoption and Wage Inequalities: Theory and Evidence," CEP Discussion Papers dp0902, Centre for Economic Performance, LSE. [Downloadable!]
  4. Kristian Behrens & Frédéric Robert-Nicoud, 2008. "Survival of the Fittest in Cities: Agglomeration, Selection, and Polarisation," CEP Discussion Papers dp0894, Centre for Economic Performance, LSE. [Downloadable!]
    Other versions:
  5. Pravin Krishna & Mine Zeynep Senses, 2009. "International Trade and Labor Income Risk in the United States," NBER Working Papers 14992, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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