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Trade and Inequality in a Directed Search Model with Firm and Worker Heterogeneity

  • Moritz Ritter

    ()

    (Department of Economics, Temple University)

This paper integrates the insight that exporting firms are typically more productive and employ higher skilled workers into a directed search model of the labor market. The model generates a skill premium as well as residual wage inequality among identical workers. A trade liberalization will cause a reallocation of workers both within and across industries. The within industry reallocation increases the skill premium, increases residual inequality for low-skilled workers, and decreases residual inequality for high-skilled workers. The across industry reallocation induces the well-known Stolper-Samuleson effect. The calibrated model generates results consistent with the prior literature examining the effect of the Canada-U.S. Free Trade Agreement on the Canadian labor market: a signiï¬cant decrease in employment in manufacturing, but only a small change in wages.

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File URL: http://www.cla.temple.edu/RePEc/documents/detu_2012_02.pdf
File Function: First Version, 2012
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Paper provided by Department of Economics, Temple University in its series DETU Working Papers with number 1202.

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Date of creation: Jul 2012
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Handle: RePEc:tem:wpaper:1202
Contact details of provider: Postal: Ritter Annex 877, Philadelphia, PA 19122
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Web page: http://www.cla.temple.edu/economics/

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  1. Shouyong Shi, 2002. "A Directed Search Model of Inequality with Heterogeneous Skills and Skill-Biased Technology," Review of Economic Studies, Oxford University Press, vol. 69(2), pages 467-491.
  2. Shouyong Shi, 1998. "Frictional Assignment," Working Papers 988, Queen's University, Department of Economics.
  3. Jonathan Eaton & Samuel Kortum & Francis Kramarz, 2011. "An Anatomy of International Trade: Evidence From French Firms," Econometrica, Econometric Society, vol. 79(5), pages 1453-1498, 09.
  4. Davidson, Carl & Matusz, Steven J. & Shevchenko, Andrei, 2008. "Outsourcing Peter To Pay Paul: High-Skill Expectations And Low-Skill Wages With Imperfect Labor Markets," Macroeconomic Dynamics, Cambridge University Press, vol. 12(04), pages 463-479, September.
  5. Donald R. Davis & James Harrigan, 2007. "Good jobs, bad jobs, and trade liberalization," Discussion Papers 0607-07, Columbia University, Department of Economics.
  6. Russell H. Hillberry & Edward J. Balistreri & Thomas F. Rutherford, 2007. "Structural Estimation and Solution of International Trade Models with Heterogeneous Firms," DEGIT Conference Papers c012_038, DEGIT, Dynamics, Economic Growth, and International Trade.
  7. Elhanan Helpman & Oleg Itshoki & Stephen Redding, 2009. "Inequality and unemployment in a global economy," LSE Research Online Documents on Economics 25501, London School of Economics and Political Science, LSE Library.
  8. James Townsend, 2007. "Do tariff reductions affect the wages of workers in protected industries? Evidence from the Canada-U.S. Free Trade Agreement," Canadian Journal of Economics, Canadian Economics Association, vol. 40(1), pages 69-92, February.
  9. Noel Gaston & Daniel Trefler, 1997. "The Labour Market Consequences of the Canada-U.S. Free Trade Agreement," Canadian Journal of Economics, Canadian Economics Association, vol. 30(1), pages 18-41, February.
  10. Arnaud Costinot & Jonathan Vogel, 2009. "Matching and Inequality in the World Economy," NBER Working Papers 14672, National Bureau of Economic Research, Inc.
  11. 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.
  12. Jonathan Vogel & Ariel Burstein, 2012. "International trade, technology, and the skill premium," 2012 Meeting Papers 664, Society for Economic Dynamics.
  13. Zhu, Susan Chun & Trefler, Daniel, 2005. "Trade and inequality in developing countries: a general equilibrium analysis," Journal of International Economics, Elsevier, vol. 65(1), pages 21-48, January.
  14. Ian King & Frank Stahler, 2010. "A Simple Theory of Trade and Unemployment in General Equilibrium," Department of Economics - Working Papers Series 1116, The University of Melbourne.
  15. Eugene Beaulieu, 2000. "The Canada-U.S. Free Trade Agreement and labour market adjustment in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 33(2), pages 540-563, May.
  16. Erhan Artu� & Shubham Chaudhuri & John McLaren, 2010. "Trade Shocks and Labor Adjustment: A Structural Empirical Approach," American Economic Review, American Economic Association, vol. 100(3), pages 1008-45, June.
  17. John Baldwin & Wulong Gu, 2003. "Export-market participation and productivity performance in Canadian manufacturing," Canadian Journal of Economics, Canadian Economics Association, vol. 36(3), pages 634-657, August.
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