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Selection into trade and wage inequality

Author

Listed:
  • Sampson, Thomas

Abstract

This paper analyzes how intra-industry trade affects the wage distribution when both workers and firms are heterogeneous. Positive assortative matching between worker skill and firm technology generates an employer size-wage premium and an exporter wage premium. Fixed export costs cause the selection of advanced technology, high-skill firms into exporting, and trade shifts the firm technology distribution upwards. Consequently, trade increases skill demand and wage inequality in all countries, both on aggregate and within the upper tail of the wage distribution. This holds when firms receive random technology draws and when technology depends on firmlevel R&D.

Suggested Citation

  • Sampson, Thomas, 2014. "Selection into trade and wage inequality," LSE Research Online Documents on Economics 59287, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:59287
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    File URL: https://researchonline.lse.ac.uk/id/eprint/59287/
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    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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