Skill Biased Heterogeneous Firms, Trade Liberalization, and the Skill Premium

James Harrigan and Ariell Reshef

No 17604, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We propose a theory that rising globalization and rising wage inequality are related because trade liberalization raises the demand facing highly competitive skill-intensive firms. In our model, only the lowest-cost firms participate in the global economy exactly along the lines of Melitz (2003). In addition to differing in their productivity, firms differ in their skill intensity. We model skill-biased technology as a correlation between skill intensity and technological acumen, and we estimate this correlation to be large using firm-level data from Chile in 1995. A fall in trade costs leads to both greater trade volumes and an increase in the relative demand for skill, as the lowest-cost/most-skilled firms expand to serve the export market while less skill-intensive non-exporters retrench in the face of increased import competition. This mechanism works regardless of factor endowment differences, so we provide an explanation for why globalization and wage inequality move together in both skill-abundant and skill-scarce countries. In our model countries are net exporters of the services of their abundant factor, but there are no Stolper- Samuelson effects because import competition affects all domestic firms equally.

JEL-codes: F1 F16 J3 J31 (search for similar items in EconPapers)
Date: 2011-11
New Economics Papers: this item is included in nep-bec and nep-int
Note: ITI LS
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (31)

Published as James Harrigan & Ariell Reshef, 2015. "Skill-biased heterogeneous firms, trade liberalization and the skill premium," Canadian Journal of Economics/Revue canadienne d'économique, vol 48(3), pages 1024-1066.

Downloads: (external link)
http://www.nber.org/papers/w17604.pdf (application/pdf)

Related works:
Journal Article: Skill-biased heterogeneous firms, trade liberalization and the skill premium (2015)
Journal Article: Skill‐biased heterogeneous firms, trade liberalization and the skill premium (2015)
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:nbr:nberwo:17604

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w17604

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().