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

Elias Dinopoulos () and Bulent Unel ()
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Elias Dinopoulos: https://people.clas.ufl.edu/dinopoe/

Departmental Working Papers from Department of Economics, Louisiana State University

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.

Date: 2014-04
New Economics Papers: this item is included in nep-bec, nep-eff, nep-ent and nep-int
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Persistent link: https://EconPapers.repec.org/RePEc:lsu:lsuwpp:2014-04

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