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Selection into Trade and Wage Inequality

  • Thomas Sampson
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    This paper analyzes the impact of trade integration on wage inequality when there is heterogeneity across both workers and firms. By incorporating labor assignment into the heterogeneous firms literature I develop a model in which positive assortative matching between worker skill and firm technology explains the employer size-wage premium and the exporter wage premium. Under trade, fixed export costs cause the selection of high productivity, high skill firms into exporting and an upwards shift in the firm technology distribution. Consequently, the demand for skill and wage inequality increase in all countries, both on aggregate and within the export sector. This result holds both when firms' technologies are determined by a random draw and when technology is endogenous to firm level R&D. With endogenous technology, the increased demand for skill caused by trade liberalization results from technology upgrading by new exporters.

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    File URL: http://cep.lse.ac.uk/pubs/download/dp1152.pdf
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    Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp1152.

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    Date of creation: Jun 2012
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    Handle: RePEc:cep:cepdps:dp1152
    Contact details of provider: Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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    1. Pol Antràs & Luis Garicano & Esteban Rossi-Hansberg, 2006. "Offshoring in a Knowledge Economy," The Quarterly Journal of Economics, MIT Press, vol. 121(1), pages 31-77, 02.
    2. Elhanan Helpman & Oleg Itskhoki & Marc-Andreas Muendler & Stephen Redding, 2012. "Trade and Inequality: From Theory to Estimation," CEP Discussion Papers dp1138, Centre for Economic Performance, LSE.
    3. Monte, Ferdinando, 2009. "Skill Bias, Trade, and Wage Dispersion," MPRA Paper 14719, University Library of Munich, Germany.
    4. Thierry Mayer & Marc J. Melitz & Gianmarco I. P. Ottaviano, 2012. "Market Size, Competition, and the Product Mix of Exporters," CEP Discussion Papers dp1146, Centre for Economic Performance, LSE.
    5. Xavier Gabaix & Augustin Landier, 2006. "Why Has CEO Pay Increased So Much?," 2006 Meeting Papers 518, Society for Economic Dynamics.
    6. 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.
    7. Amiti, Mary & Davis, Donald R, 2008. "Trade, Firms, and Wages: Theory and Evidence," CEPR Discussion Papers 6872, C.E.P.R. Discussion Papers.
    8. Giulia Faggio & Kjell Salvanes & John Van Reenen, 2007. "The Evolution of Inequality in Productivity and Wages: Panel Data Evidence," NBER Working Papers 13351, National Bureau of Economic Research, Inc.
    9. Jan Eeckhout & Philipp Kircher, 2011. "Identifying Sorting--In Theory," Review of Economic Studies, Oxford University Press, vol. 78(3), pages 872-906.
    10. Lentz, Rasmus, 2010. "Sorting by search intensity," Journal of Economic Theory, Elsevier, vol. 145(4), pages 1436-1452, July.
    11. Franziska Ohnsorge & Daniel Trefler, 2007. "Sorting It Out: International Trade with Heterogeneous Workers," Journal of Political Economy, University of Chicago Press, vol. 115(5), pages 868-892, October.
    12. Ariel Burstein & Jonathan Vogel, 2010. "Globalization, Technology, and the Skill Premium: A Quantitative Analysis," NBER Working Papers 16459, National Bureau of Economic Research, Inc.
    13. Arnaud Costinot & Jonathan Vogel, 2009. "Matching and Inequality in the World Economy," NBER Working Papers 14672, National Bureau of Economic Research, Inc.
    14. Elhanan Helpman & Oleg Itskhoki, 2010. "Labour Market Rigidities, Trade and Unemployment," Review of Economic Studies, Oxford University Press, vol. 77(3), pages 1100-1137.
    15. Elhanan Helpman & Oleg Itskhoki & Stephen Redding, 2008. "Inequality and Unemployment in a Global Economy," NBER Working Papers 14478, National Bureau of Economic Research, Inc.
    16. Paula Bustos, 2011. "Trade Liberalization, Exports, and Technology Upgrading: Evidence on the Impact of MERCOSUR on Argentinian Firms," American Economic Review, American Economic Association, vol. 101(1), pages 304-40, February.
    17. 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.
    18. Arnaud Costinot, 2009. "An Elementary Theory of Comparative Advantage," Econometrica, Econometric Society, vol. 77(4), pages 1165-1192, 07.
    19. Paula Bustos, 2011. "The Impact of Trade Liberalization on Skill Upgrading Evidence from Argentina," Working Papers 559, Barcelona Graduate School of Economics.
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