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Unequal Effects of Trade on Workers with Different Abilities

Author

Listed:
  • Elhanan Helpman
  • Oleg Itskhoki
  • Stephen Redding

Abstract

In recent research, we have proposed a new framework for examining the determinants of income inequality, which emphasizes firm and worker heterogeneity and selection into export markets. In this paper, we use our framework to examine how wage inequality and unemployment vary across workers with different abilities. Both in the closed and open economy, the unemployment rate is decreasing in worker ability, whereas both the average wage and wage inequality are increasing in worker ability. Upon opening the economy to trade, however, intermediate-ability workers experience reductions in average wages and increases in unemployment rates relative to both lower and higher ability workers. (JEL: F12, F16, E24) (c) 2010 by the European Economic Association.

Suggested Citation

  • Elhanan Helpman & Oleg Itskhoki & Stephen Redding, 2010. "Unequal Effects of Trade on Workers with Different Abilities," Journal of the European Economic Association, MIT Press, vol. 8(2-3), pages 421-433, 04-05.
  • Handle: RePEc:tpr:jeurec:v:8:y:2010:i:2-3:p:421-433
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    References listed on IDEAS

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    1. Oded Galor & Joseph Zeira, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Oxford University Press, vol. 60(1), pages 35-52.
    2. Dasgupta, Partha & Ray, Debraj, 1986. "Inequality as a Determinant of Malnutrition and Unemployment: Theory," Economic Journal, Royal Economic Society, vol. 96(384), pages 1011-1034, December.
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    Citations

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    Cited by:

    1. Elhanan Helpman, 2010. "Labor Market Frictions as a Source of Comparative Advantage, with Implications for Unemployment and Inequality," NBER Working Papers 15764, National Bureau of Economic Research, Inc.
    2. Klein, Michael W. & Moser, Christoph & Urban, Dieter M., 2013. "Exporting, skills and wage inequality," Labour Economics, Elsevier, vol. 25(C), pages 76-85.
    3. Mandelman, Federico S., 2016. "Labor market polarization and international macroeconomic dynamics," Journal of Monetary Economics, Elsevier, vol. 79(C), pages 1-16.
    4. Heid, Benedikt & Larch, Mario, 2012. "Migration, trade and unemployment," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 6, pages 1-40.
    5. Marco de Pinto, 2012. "Unemployment Benefits as Redistribution Scheme of Trade Gains - a Positive Analysis," MAGKS Papers on Economics 201210, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    6. Schmerer, Hans-Jörg, 2014. "Foreign direct investment and search unemployment: Theory and evidence," International Review of Economics & Finance, Elsevier, vol. 30(C), pages 41-56.
    7. Goel, Manisha, 2017. "Inequality Between and Within Skill Groups: The Curious Case of India," World Development, Elsevier, vol. 93(C), pages 153-176.
    8. Arntz, Melanie & Gregory, Terry & Lehmer, Florian, 2011. "Unequal pay or unequal employment? What drives the skill-composition of labor flows in Germany?," ZEW Discussion Papers 11-074, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    9. Schmerer, Hans-Jörg, 2012. "Skill-biased labor market reforms and international competitiveness," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 6, pages 1-39.
    10. Marco Pinto & Jochen Michaelis, 2014. "International Trade and Unemployment—the Worker-selection Effect," Review of International Economics, Wiley Blackwell, vol. 22(2), pages 226-252, May.
    11. Yanhui Wu, 2011. "Managerial Incentives and Compensation in a Global Market," CEP Discussion Papers dp1066, Centre for Economic Performance, LSE.
    12. Marco de Pinto, 2012. "Unemployment Benefits as Redistribution Scheme of Trade Gains - a Positive Analysis," FIW Working Paper series 092, FIW.
    13. Raphael Anton Auer, 2010. "Are Imports from Rich Nations Deskilling Emerging Economies? - Human Capital and the Dynamic Effects of Trade," Working Papers 2010-18, Swiss National Bank.

    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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