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Inequality and Unemployment in a Global Economy

  • Elhanan Helpman
  • Oleg Itskhoki
  • Stephen Redding

This paper develops a new framework for examining the determinants of wage distributions that emphasizes within-industry reallocation, labor market frictions, and differences in workforce composition across firms. More productive firms pay higher wages and exporting increases the wage paid by a firm with a given productivity. The opening of trade enhances wage inequality and can either raise or reduce unemployment. While wage inequality is higher in a trade equilibrium than in autarky, gradual trade liberalization first increases and later decreases inequality. Copyright 2010 The Econometric Society.

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Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 78 (2010)
Issue (Month): 4 (07)
Pages: 1239-1283

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Handle: RePEc:ecm:emetrp:v:78:y:2010:i:4:p:1239-1283
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