Firm Productivity, Occupational Choice, and Inequality in a Global Economy
AbstractThis study proposes a simple theory of trade with endogenous firm productivity, occupational choice, and income inequality. Individuals with different managerial talent choose to become self-employed entrepreneurs or workers. Entrepreneurs enhance firm productivity by investing in managerial capital. The model generates three income classes: low-income workers facing the prospect of unemployment; middle-income entrepreneurs managing domestic firms; and high-income entrepreneurs managing global firms. A reduction in per-unit trade costs raises productivity of global firms, reduces productivity of domestic firms, and worsens personal income distribution by generating labor-market polarization. A reduction in fixed exporting costs reduces productivity of every firm and has an ambiguous effect on personal income distribution. Trade-liberalization policies raise unemployment and improve welfare.
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Bibliographic InfoPaper provided by Department of Economics, Louisiana State University in its series Departmental Working Papers with number 2014-04.
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-03-01 (All new papers)
- NEP-BEC-2014-03-01 (Business Economics)
- NEP-EFF-2014-03-01 (Efficiency & Productivity)
- NEP-ENT-2014-03-01 (Entrepreneurship)
- NEP-INT-2014-03-01 (International Trade)
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