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Heterogeneous Workers, Trade, and Migration

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  • Inga Heiland
  • Wilhelm Kohler

Abstract

We analyze the welfare effects of trade and migration, focusing on two-sided horizontal heterogeneity among workers and firms. We prove the existence of a unique symmetric equilibrium in a two stage game of firm entry (including choice of skill-types) and pricing, involving monopsony power on the labor market and endogenous goods price markups. Trade increases wage markups and worsens the average quality worker-firm matches as well as raising within-firm wage inequality. In contrast, migration lowers wage markups and tends to improve the average matching quality. Our model advocates opening up labor markets simultaneously with trade liberalization.

Suggested Citation

  • Inga Heiland & Wilhelm Kohler, 2018. "Heterogeneous Workers, Trade, and Migration," CESifo Working Paper Series 7355, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_7355
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    More about this item

    Keywords

    two-way migration; gains from trade; heterogeneous workers;

    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
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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