Trade and Inequality in a Directed Search Model with Firm and Worker Heterogeneity
Moritz Ritter ()
No 1202, DETU Working Papers from Department of Economics, Temple University
This paper integrates the insight that exporting firms are typically more productive and employ higher skilled workers into a directed search model of the labor market. The model generates a skill premium as well as residual wage inequality among identical workers. A trade liberalization will cause a reallocation of workers both within and across industries. The within industry reallocation increases the skill premium, increases residual inequality for low-skilled workers, and decreases residual inequality for high-skilled workers. The across industry reallocation induces the well-known Stolper-Samuleson effect. The calibrated model generates results consistent with the prior literature examining the effect of the Canada-U.S. Free Trade Agreement on the Canadian labor market: a signiï¬ cant decrease in employment in manufacturing, but only a small change in wages.
Keywords: Directed Search; Inequality; International Trade (search for similar items in EconPapers)
JEL-codes: E25 F16 J64 (search for similar items in EconPapers)
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http://www.cla.temple.edu/RePEc/documents/detu_2012_02.pdf First Version, 2012 (application/pdf)
Journal Article: Trade and inequality in a directed search model with firm and worker heterogeneity (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:tem:wpaper:1202
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