IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Trade and Inequality: From Theory to Estimation

  • Elhanan Helpman
  • Oleg Itskhoki
  • Marc-Andreas Muendler
  • Stephen Redding

While neoclassical theory emphasizes the impact of trade on wage inequality between occupations and sectors, more recent theories of firm heterogeneity point to the impact of trade on wage dispersion within occupations and sectors. Using linked employer-employee data for Brazil, we show that much of overall wage inequality arises within sector-occupations and for workers with similar observable characteristics; this within component is driven by wage dispersion between firms; and wage dispersion between firms is related to firm employment size and trade participation. We then extend the heterogenous-firm model of trade and inequality from Helpman, Itskhoki, and Redding (2010) and structurally estimate it with Brazilian data. We show that the estimated model fits the data well, both in terms of key moments as well as in terms of the overall distributions of wages and employment, and find that international trade is important for this fit. In the estimated model, reductions in trade costs have a sizeable effect on wage inequality.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://cep.lse.ac.uk/pubs/download/dp1138.pdf
Download Restriction: no

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp1138.

as
in new window

Length:
Date of creation: Apr 2012
Date of revision:
Handle: RePEc:cep:cepdps:dp1138
Contact details of provider: Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Jakob Roland Munch & Jan Rose Skaksen, 2006. "Human Capital and Wages in Exporting Firms," EPRU Working Paper Series 06-10, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  2. Abowd, John M. & Kramarz, Francis & Margolis, David N. & Troske, Kenneth R., 2001. "The Relative Importance of Employer and Employee Effects on Compensation: A Comparison of France and the United States," Journal of the Japanese and International Economies, Elsevier, vol. 15(4), pages 419-436, December.
  3. Irarrazabal, Alfonso & Moxnes, Andreas & Opromolla, Luca David, 2009. "The Margins of Multinational Production and the Role of Intra-firm trade," CEPR Discussion Papers 7145, C.E.P.R. Discussion Papers.
  4. Muendler, Marc-Andreas, 2007. "Labor Reallocation in Response to Trade Reform," University of California at San Diego, Economics Working Paper Series qt3cm38535, Department of Economics, UC San Diego.
  5. Gustavo Gonzaga & Naércio Menezes Filho & Maria Cristina Terra, 2005. "Trade liberalization and the evolution of skill earnings differentials in Brazil," Textos para discussão 503, Department of Economics PUC-Rio (Brazil).
  6. Giulia Faggio & Kjell G. Salvanes & John Van Reenen, 2010. "The evolution of inequality in productivity and wages: panel data evidence," Industrial and Corporate Change, Oxford University Press, vol. 19(6), pages 1919-1951, December.
  7. Davidson, Carl & Matusz, Steven J. & Shevchenko, Andrei, 2008. "Globalization and firm level adjustment with imperfect labor markets," Journal of International Economics, Elsevier, vol. 75(2), pages 295-309, July.
  8. Elhanan Helpman & Oleg Itskhoki, 2007. "Labor Market Rigidities, Trade and Unemployment," NBER Working Papers 13365, National Bureau of Economic Research, Inc.
  9. Carl Davidson & Fredrik Heyman & Steven Matusz, & Fredrik Sjoholm & Susan Zhu, . "Globalization and Imperfect Labor Market Sorting," Discussion Papers 10/30, University of Nottingham, GEP.
  10. Krishna, Pravin & Poole, Jennifer P. & Senses, Mine Zeynep, 2011. "Trade liberalization, firm heterogeneity, and wages : new evidence from matched employer-employee data," Policy Research Working Paper Series 5711, The World Bank.
  11. Elhanan Helpman & Oleg Itskhoki & Stephen Redding, 2008. "Inequality and Unemployment in a Global Economy," NBER Working Papers 14478, National Bureau of Economic Research, Inc.
  12. Goldberg, Pinelopi Koujianou & Pavcnik, Nina, 2003. "The Response of the Informal Sector to Trade Liberalization," CEPR Discussion Papers 3874, C.E.P.R. Discussion Papers.
  13. Monte, Ferdinando, 2011. "Skill bias, trade, and wage dispersion," Journal of International Economics, Elsevier, vol. 83(2), pages 202-218, March.
  14. Paula Bustos, 2009. "Trade Liberalization, Exports and Technology Upgrading: Evidence on the Impact of MERCOSUR on Argentinean Firms," 2009 Meeting Papers 1029, Society for Economic Dynamics.
  15. Daniel Baumgarten, 2010. "Exporters and the Rise in Wage Inequality – Evidence from German Linked Employer-Employee Data," Ruhr Economic Papers 0217, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  16. Sherwin Rosen, 1982. "Authority, Control, and the Distribution of Earnings," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 311-323, Autumn.
  17. Avraham Ebenstein & Ann Harrison & Margaret McMillan & Shannon Phillips, 2009. "Estimating the Impact of Trade and Offshoring on American Workers Using the Current Population Surveys," NBER Working Papers 15107, National Bureau of Economic Research, Inc.
  18. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "Equilibrium wage dispersion with worker and employer heterogeneity," Sciences Po publications info:hdl:2441/dc0ckec3fcb, Sciences Po.
  19. Felbermayr, Gabriel & Prat, Julien & Schmerer, Hans-Jörg, 2011. "Globalization and labor market outcomes: Wage bargaining, search frictions, and firm heterogeneity," Munich Reprints in Economics 20471, University of Munich, Department of Economics.
  20. Fally, Thibault & Paillacar, Rodrigo & Terra, Cristina, 2010. "Economic geography and wages in Brazil: Evidence from micro-data," Journal of Development Economics, Elsevier, vol. 91(1), pages 155-168, January.
  21. Gueorgui Kambourov, 2009. "Labour Market Regulations and the Sectoral Reallocation of Workers: The Case of Trade Reforms," Review of Economic Studies, Oxford University Press, vol. 76(4), pages 1321-1358.
  22. Egger, Hartmut & Egger, Peter & Kreickemeier, Udo, 2011. "Trade, Wages, and Profits," CEPR Discussion Papers 8727, C.E.P.R. Discussion Papers.
  23. Ariel Burstein & Jonathan Vogel, 2010. "Globalization, Technology, and the Skill Premium: A Quantitative Analysis," NBER Working Papers 16459, National Bureau of Economic Research, Inc.
  24. Felbermayr, Gabriel & Prat, Julien & Schmerer, Hans-Jörg, 2008. "Globalization and Labor Market Outcomes: Wage Bargaining, Search Frictions, and Firm Heterogeneity," IZA Discussion Papers 3363, Institute for the Study of Labor (IZA).
  25. Menezes Filho, N. A. & Menezes Filho, N. A., 2007. "The Structure of Worker Compensation in Brazil, With a Comparison to France and the United States," Insper Working Papers wpe_78, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
  26. Orazio Attanasio & Pinelopi Goldberg & Nina Pavcnik, 2003. "Trade Reforms and Wage Inequiality in Colombia," NBER Working Papers 9830, National Bureau of Economic Research, Inc.
  27. Gene M. Grossman & Esteban Rossi-Hansberg, 2008. "Trading Tasks: A Simple Theory of Offshoring," American Economic Review, American Economic Association, vol. 98(5), pages 1978-97, December.
  28. Filho, Naerico Aquino Menezes & Muendler, Marc-Andreas & Ramey, Garey, 2006. "The Structure of Worker Compensation in Brazil, With a Comparison to France and the United States," University of California at San Diego, Economics Working Paper Series qt8pr105rg, Department of Economics, UC San Diego.
  29. Postel-Vinay & Robin, 2002. "Equilibrium wage dispersion with worker and employer heterogeneity," Working Papers 155908, Institut National de la Recherche Agronomique, France.
  30. Baumgarten, Daniel, 2013. "Exporters and the rise in wage inequality: Evidence from German linked employer-employee data," Munich Reprints in Economics 20146, University of Munich, Department of Economics.
  31. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-73, May.
  32. Thorsten Schank & Claus Schnabel & Joachim Wagner, 2006. "Do exporters really pay higher wages? First evidence from German linked employer-employee data," Working Paper Series in Economics 28, University of Lüneburg, Institute of Economics.
  33. Hartmut Egger & Udo Kreickemeier, 2007. "Firm Heterogeneity and the Labour Market Effects of Trade Liberalisation," CESifo Working Paper Series 2000, CESifo Group Munich.
  34. Simon D. Woodcock, 2007. "Match Effects," Discussion Papers dp07-13, Department of Economics, Simon Fraser University.
  35. Thomas Lemieux, 2006. "Increasing Residual Wage Inequality: Composition Effects, Noisy Data, or Rising Demand for Skill?," American Economic Review, American Economic Association, vol. 96(3), pages 461-498, June.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:cep:cepdps:dp1138. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.