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Critical Review of 'A Simple Model of Firm Heterogeneity, International Trade and Wages'

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  • Atif, Syed Muhammad

Abstract

This report critically analyses the paper "A Simple Model of Firm Heterogeneity, International Trade and Wages' authored by, Stephen Ross Yeaple. Yeaple (2005) introduces a static model in which ex-ante homogeneous firms are differentiated based on heterogeneity in technology adoption and skill selection. The process of decision making is based on comparative study of revenues and costs associated with acquisition of technology and labor. By segmenting technology into high- and low-tech, and labor into high- and low-skilled, Yeaple suggests that high-tech firms hire skilled labor at greater wages and yield the access to international market, while on the other hand, the low-tech firms hire moderate skilled labor, pay lower wages and supply to the domestic market only. Furthermore, he shows that under an open economy, a reduction in costs of international trade leads to an increase in share of high-tech (exporting) firms and induces some low-tech firms to switch to the high-tech industry.

Suggested Citation

  • Atif, Syed Muhammad, 2012. "Critical Review of 'A Simple Model of Firm Heterogeneity, International Trade and Wages'," MPRA Paper 42334, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:42334
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    File URL: https://mpra.ub.uni-muenchen.de/42334/1/MPRA_paper_42334.pdf
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    References listed on IDEAS

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    1. George A. Akerlof & Janet L. Yellen, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, Oxford University Press, vol. 105(2), pages 255-283.
    2. Maria Guadalupe, 2007. "Product Market Competition, Returns to Skill, and Wage Inequality," Journal of Labor Economics, University of Chicago Press, vol. 25, pages 439-474.
    3. Paulo Bastos & Odd Rune Straume, 2012. "Globalization, product differentiation, and wage inequality," Canadian Journal of Economics, Canadian Economics Association, vol. 45(3), pages 857-878, August.
    4. Michael P. Keane, 1993. "Individual Heterogeneity and Interindustry Wage Differentials," Journal of Human Resources, University of Wisconsin Press, vol. 28(1), pages 134-161.
    5. Roberto Alvarez & Ricardo López, 2005. "Exporting and performance: evidence from Chilean plants," Canadian Journal of Economics, Canadian Economics Association, vol. 38(4), pages 1384-1400, November.
    6. Lorenzo Caliendo & Esteban Rossi-Hansberg, 2012. "The Impact of Trade on Organization and Productivity," The Quarterly Journal of Economics, Oxford University Press, vol. 127(3), pages 1393-1467.
    7. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-444, June.
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    More about this item

    Keywords

    Firm Heterogeneity; International Trade;

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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