Entrepreneurs, jobs, and trade

Elias Dinopoulos and Bulent Unel ()

European Economic Review, 2015, vol. 79, issue C, 93-112

Abstract: We propose a simple theory of endogenous firm productivity, unemployment, and top income inequality. High-talented individuals choose to become self-employed entrepreneurs and acquire more managerial (human) capital; whereas low-talented individuals become workers and face the prospect of equilibrium unemployment. In a two-country global economy, trade openness raises firm productivity, increases top income inequality, and may reduce welfare in the country exporting the good with lower relative labor-market frictions. Trade openness reduces firm productivity, lowers top income inequality, and necessarily raises welfare in the other country. The effect of trade on unemployment is ambiguous. Unilateral job-creating policies increase welfare in both countries. However, they reduce unemployment and raise top income inequality in the policy-active country; and reduce top income inequality while increasing unemployment in the policy-passive country.

Keywords: Inequality; Managerial capital; Search and matching; Trade; Unemployment (search for similar items in EconPapers)
JEL-codes: F1 J2 J3 J6 L1 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Working Paper: Entrepreneurs, Jobs, and Trade (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:79:y:2015:i:c:p:93-112

DOI: 10.1016/j.euroecorev.2015.07.010

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