Trade, Labor Reallocation Across Firms and Wage Inequality

Mariano A. Somale
Additional contact information
Mariano A. Somale: https://www.federalreserve.gov/econres/mariano-a-somale.htm

No 1348, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper develops a framework for studying the effects of higher trade openness on the wage distribution that emphasizes within-industry labor reallocation across firms, strong skill-productivity complementarities in production and heterogenous fixed export costs across firms. Assuming no entry in the industry, an autarkic economy that opens to trade experiences a pervasive rise in wage inequality; a trade liberalization in a trading economy increases inequality at the lower end of the distribution, but may reduce it elsewhere. Assuming free entry, opening to trade could result in pervasively higher inequality or wage polarization. The analysis highlights the importance of new exporters (extensive margin) in shaping the aggregate relative demand for skills, a channel controlled by the distribution of fixed export costs in the model.

Keywords: Trade; Firms; Supermodularity; Wage inequality; Workers (search for similar items in EconPapers)
JEL-codes: F10 F12 F16 (search for similar items in EconPapers)
Date: 2022-06-22
New Economics Papers: this item is included in nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.federalreserve.gov/econres/ifdp/files/ifdp1348.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1348

DOI: 10.17016/IFDP.2022.1348

Access Statistics for this paper

More papers in International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().