Firm Heterogeneity and the Labor Market Effects of Trade Liberalization

Hartmut Egger () and Udo Kreickemeier

Chapter 10 in International Trade and Labor Markets:Welfare, Inequality and Unemployment, 2017, pp 265-306 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This chapter develops a model that incorporates workers’ fair wage preferences into a general equilibrium framework with monopolistic competition between heterogeneous firms à la Melitz (2003). By assuming that the wage considered to be fair by workers depends on the productivity and thus the economic success of the firm they are working in, we can study the determinants of profits, involuntary unemployment and within-group wage inequality in a unified framework. We use this model to investigate the effects of globalization. In a benchmark case with identical costs of entering domestic and foreign markets, there are gains from trade accompanied by distributional conflicts, which have so far not been accounted for in the literature: A simultaneous increase of average profits and involuntary unemployment as well as a surge in within-group wage inequality.

Keywords: International Trade; Inequality; Labor Markets; Unemployment; Offshoring (search for similar items in EconPapers)
JEL-codes: J01 (search for similar items in EconPapers)
Date: 2017
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Related works:
Journal Article: FIRM HETEROGENEITY AND THE LABOR MARKET EFFECTS OF TRADE LIBERALIZATION (2009)
Working Paper: Firm Heterogeneity and the Labour Market Effects of Trade Liberalisation (2007)
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