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

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Abstract

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.

Suggested Citation

  • Elias Dinopoulos & Bulent Unel, 2014. "Firm Productivity, Occupational Choice, and Inequality in a Global Economy (revised March 2015)," Departmental Working Papers 2014-04, Department of Economics, Louisiana State University.
  • Handle: RePEc:lsu:lsuwpp:2014-04
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    File URL: http://bus.lsu.edu/McMillin/Working_Papers/pap14_04.pdf
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    Cited by:

    1. Wang, Yongjin & Zhao, Laixun, 2015. "Saving good jobs from global competition by rewarding quality and efforts," Journal of International Economics, Elsevier, vol. 96(2), pages 426-434.

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