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The Distribution of Talent and the Pattern and Consequences of International Trade

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  • Gene Grossman

Abstract

In an economy with imperfect labor contracts, differences in the distribution of talent can be an independent source of comparative advantage. I study a world economy with two activities, one in which an individual's contribution to production can be measured accurately and another in which workers engage in joint production. When individuals have private information about their own talents, the most able workers self-select into the occupation in which their reward best reflects their own performance. I describe an equilibrium in which the country with a more heterogeneous labor force exports the good that is produced by the most talented individuals. In this country, trade exacerbates the "polarization" of labor and often worsens the distribution of income.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2002/wp-cesifo-2002-06/745.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 745.

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Date of creation: 2002
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Handle: RePEc:ces:ceswps:_745

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Related research

Keywords: labor contracts; diversity; joint production; comparative advantage; income distribution;

References

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  1. Michael Kremer & Eric Maskin, 1996. "Wage Inequality and Segregation by Skill," NBER Working Papers 5718, National Bureau of Economic Research, Inc.
  2. Legros, Patrick & Newman, Andrew F, 2002. "Monotone Matching in Perfect and Imperfect Worlds," Review of Economic Studies, Wiley Blackwell, vol. 69(4), pages 925-42, October.
  3. Kremer, Michael, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 551-75, August.
  4. Grossmann, G.M. & Maggi, G., 1998. "Diversity and Trade," Papers 192, Princeton, Woodrow Wilson School - Public and International Affairs.
  5. Ruffin, Roy J, 1988. "The Missing Link: The Ricardian Approach to the Factor Endowments Theory of Trade," American Economic Review, American Economic Association, vol. 78(4), pages 759-72, September.
  6. Weiss, Andrew W, 1980. "Job Queues and Layoffs in Labor Markets with Flexible Wages," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 526-38, June.
  7. Gene M. Grossman, 1998. "Imperfect Labor Contracts and International Trade," Working Papers 155, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics..
  8. Kevin M. Murphy & Andrei Shleifer & Robert W. Vishny, 1990. "The Allocation of Talent: Implicationsfor Growth," University of Chicago - George G. Stigler Center for Study of Economy and State 65, Chicago - Center for Study of Economy and State.
  9. Clemenz, Gerhard, 1995. " Adverse Selection in Labor Markets and International Trade," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(1), pages 73-88, March.
  10. Matsuyama, Kiminori, 1992. "A Simple Model of Sectoral Adjustment," Review of Economic Studies, Wiley Blackwell, vol. 59(2), pages 375-88, April.
  11. Rosen, Sherwin, 1981. "The Economics of Superstars," American Economic Review, American Economic Association, vol. 71(5), pages 845-58, December.
  12. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
  13. Michael Kremer & Eric Maskin, 1996. "Wage Inequality and Segregation," Harvard Institute of Economic Research Working Papers 1777, Harvard - Institute of Economic Research.
  14. Malcomson, James M, 1981. "Unemployment and the Efficiency Wage Hypothesis," Economic Journal, Royal Economic Society, vol. 91(364), pages 848-66, December.
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Cited by:
  1. Fujita, M. & Weber, S., 2010. "Immigration Quotas in the Globalized Economy," Journal of the New Economic Association, New Economic Association, issue 7, pages 10-23.

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