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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

Abstract: 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)
Date: 2012-07
New Economics Papers: this item is included in nep-dge
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Downloads: (external link) First Version, 2012 (application/pdf)

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Journal Article: Trade and inequality in a directed search model with firm and worker heterogeneity (2015) Downloads
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