Trade and Inequality in a Directed Search Model with Firm and Worker Heterogeneity
AbstractThis paper integrates the insight that exporting firms are typically more productive and employ higher skilled workers into a directed search model of the labor market. The model generates a skill premium as well as residual wage inequality among identical workers. A trade liberalization will cause a reallocation of workers both within and across industries. The within industry reallocation increases the skill premium, increases residual inequality for low-skilled workers, and decreases residual inequality for high-skilled workers. The across industry reallocation induces the well-known Stolper-Samuleson effect. The calibrated model generates results consistent with the prior literature examining the effect of the Canada-U.S. Free Trade Agreement on the Canadian labor market: a signiï¬cant decrease in employment in manufacturing, but only a small change in wages.
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Bibliographic InfoPaper provided by Department of Economics, Temple University in its series DETU Working Papers with number 1202.
Date of creation: Jul 2012
Date of revision:
Directed Search; Inequality; International Trade;
Find related papers by JEL classification:
- E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
- F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
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