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Trade and industrial location with heterogeneous labor

  • Amiti, Mary
  • Pissarides, Christopher A.

We show in the framework of a new economic geography model that when labour is heterogenous and productivity depends on the quality of the match between job and worker, trade liberalization may lead to industrial agglomeration and inter-industry trade. The agglomeration force is the improvement in the quality of matches when firms recruit from a bigger pool of labour. The forces against agglomeration are the existence of trade costs and monopoly power in the labour market. We show that more heterogeneity in skills attracts both firms and workers to bigger markets and supports agglomeration at higher trade costs.

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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 67 (2005)
Issue (Month): 2 (December)
Pages: 392-412

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Handle: RePEc:eee:inecon:v:67:y:2005:i:2:p:392-412
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  1. Petrongolo, Barbara & Pissarides, Christopher, 2002. "Scale Effects in Markets with Search," CEPR Discussion Papers 3648, C.E.P.R. Discussion Papers.
  2. Andersson, Fredrik & Burgess, Simon & Lane, Julia I., 2007. "Cities, matching and the productivity gains of agglomeration," Journal of Urban Economics, Elsevier, vol. 61(1), pages 112-128, January.
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