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Inequality and unemployment in a global economy

  • Elhanan Helpman
  • Oleg Itshoki
  • Stephen Redding

This paper develops a new framework for examining the distributional consequences of international trade that incorporates firm and worker heterogeneity, search and matching frictions in the labor market, and screening of workers by firms. Larger firms pay higher wages and exporters pay higher wages than non-exporters. The opening of trade enhances wage inequality and raises unemployment, but expected welfare gains are ensured if workers are risk neutral. And while wage inequality is larger in a trade equilibrium than in autarky, reductions of trade impediments can either raise or reduce wage inequality.

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File URL: http://eprints.lse.ac.uk/25501/
File Function: Open access version.
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Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 25501.

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Length: 40 pages
Date of creation: Jul 2009
Date of revision:
Handle: RePEc:ehl:lserod:25501
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