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Firm Productivity, Occupational Choice, and Inequality in a Global Economy (revised March 2015)

This study proposes a simple theory of trade with endogenous firm productivity, occupational choice, and income inequality. Individuals with different managerial talent choose to become self-employed entrepreneurs or workers. Entrepreneurs enhance firm productivity by investing in managerial capital. The model generates three income classes: low-income workers facing the prospect of unemployment; middle-income entrepreneurs managing domestic firms; and high-income entrepreneurs managing global firms. A reduction in per-unit trade costs raises productivity of global firms, reduces productivity of domestic firms, and worsens personal income distribution by generating labor-market polarization. A reduction in fixed exporting costs reduces productivity of every firm and has an ambiguous effect on personal income distribution. Trade-liberalization policies raise unemployment and improve welfare.

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File URL: http://bus.lsu.edu/McMillin/Working_Papers/pap14_04.pdf
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Paper provided by Department of Economics, Louisiana State University in its series Departmental Working Papers with number 2014-04.

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Handle: RePEc:lsu:lsuwpp:2014-04
Contact details of provider: Postal: Baton Rouge, LA 70803-6306
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Web page: http://www.business.lsu.edu/economics
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  1. Chiara Criscuolo & Jonathan E. Haskel & Matthew J. Slaughter, 2005. "Global Engagement and the Innovation Activities of Firms," NBER Working Papers 11479, National Bureau of Economic Research, Inc.
  2. Xavier Gabaix & Augustin Landier, 2008. "Why Has CEO Pay Increased So Much?," The Quarterly Journal of Economics, MIT Press, vol. 123(1), pages 49-100, 02.
  3. 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.
  4. Egger, Hartmut & Kreickemeier, Udo, 2012. "Fairness, trade, and inequality," Journal of International Economics, Elsevier, vol. 86(2), pages 184-196.
  5. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
  6. Thomas Lemieux, 2007. "The Changing Nature of Wage Inequality," NBER Working Papers 13523, National Bureau of Economic Research, Inc.
  7. Alla Lileeva & Daniel Trefler, 2010. "Improved Access to Foreign Markets Raises Plant-Level Productivity... for Some Plants," The Quarterly Journal of Economics, MIT Press, vol. 125(3), pages 1051-1099, August.
  8. Pinelopi Koujianou Goldberg & Nina Pavcnik, 2007. "Distributional Effects of Globalization in Developing Countries," NBER Working Papers 12885, National Bureau of Economic Research, Inc.
  9. Monte, Ferdinando, 2009. "Skill Bias, Trade, and Wage Dispersion," MPRA Paper 14719, University Library of Munich, Germany.
  10. Melitz, Marc J. & Trefler, Daniel, 2012. "Gains from Trade When Firms Matter," Scholarly Articles 10914282, Harvard University Department of Economics.
  11. Zvi Griliches, 1979. "Issues in Assessing the Contribution of Research and Development to Productivity Growth," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 92-116, Spring.
  12. Davidson, Carl & Martin, Lawrence & Matusz, Steven, 1988. "The Structure of Simple General Equilibrium Models with Frictional Unemployment," Journal of Political Economy, University of Chicago Press, vol. 96(6), pages 1267-93, December.
  13. Sherwin Rosen, 1982. "Authority, Control, and the Distribution of Earnings," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 311-323, Autumn.
  14. Davidson, Carl & Martin, Lawrence & Matusz, Steven, 1999. "Trade and search generated unemployment," Journal of International Economics, Elsevier, vol. 48(2), pages 271-299, August.
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