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Heterogeneous Workers, Trade, and Migration

Inga Heiland () and Wilhelm Kohler

No 7355, CESifo Working Paper Series from CESifo Group Munich

Abstract: We develop a model that combines monopolistic competition on goods markets with skill-type heterogeneity on the labor market to analyze the effects of trade and migration on welfare and inequality. Skill-type heterogeneity and partial specificity to firms’ endogenously chosen skill requirements lead to endogenous worker-firm match quality, endogenous wage markups, and within-firm wage inequality. We identify novel effects of trade and migration. Trade enhances firms’ monopsony power on the labor market and worsens the average quality of worker-firm matches, but the gains from trade theorem survives. Integration of labor markets leads to two-way migration between symmetric countries. Migration enhances competitiveness on the labor market and tends to increase the average quality of worker-firm matches. Trade and migration are complements. Our model clearly advocates opening up labor markets simultaneously with trade liberalization.

Keywords: two-way migration; gains from trade; heterogeneous workers (search for similar items in EconPapers)
JEL-codes: F12 F16 F22 J24 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int, nep-lma and nep-mig
Date: 2018
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Working Paper: Heterogeneous Workers, Trade, and Migration (2013) Downloads
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