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Trade and inequality in a directed search model with firm and worker heterogeneity

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  • Moritz Ritter
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 labour market. The model generates a skill premium as well as residual wage inequality among identical workers. A trade liberalization increases the skill premium and likely increases residual inequality among high-skilled workers. The calibrated model generates results consistent with the prior literature examining the effect of the Canada-US Free Trade Agreement on the Canadian labour market: a significant decrease in employment in manufacturing, but only a small change in unemployment and wages.

Suggested Citation

  • Moritz Ritter, 2015. "Trade and inequality in a directed search model with firm and worker heterogeneity," Canadian Journal of Economics, Canadian Economics Association, vol. 48(5), pages 1902-1916, December.
    • Handle: RePEc:cje:issued:v:48:y:2015:i:5:p:1902-1916
    DOI: 10.1111/caje.12184
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    Cited by:

    1. Gabriel Felbermayr & Giammario Impullitti & Julien Prat, 2018. "Firm Dynamics and Residual Inequality in Open Economies," Journal of the European Economic Association, European Economic Association, vol. 16(5), pages 1476-1539.
    2. Artuc, Erhan, 2012. "Workers'age and the impact of trade shocks," Policy Research Working Paper Series 6035, The World Bank.
    3. Ian King & Frank Stähler, 2014. "International trade and directed search unemployment in general equilibrium," Canadian Journal of Economics, Canadian Economics Association, vol. 47(2), pages 580-604, May.
    4. Koch, Michael & Egger, Hartmut, 2013. "Trade and the Firm-Internal Allocation of Workers to Tasks," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79841, Verein für Socialpolitik / German Economic Association.
    5. Ritter, Moritz, 2017. "Inequality And International Trade: The Role Of Skill-Biased Technology And Search Frictions," Macroeconomic Dynamics, Cambridge University Press, vol. 21(3), pages 624-643, April.
    6. Erhan Artuc, 2009. "Intergenerational Effects of Trade Liberalization," 2009 Meeting Papers 870, Society for Economic Dynamics.
    7. Artuç, Erhan & McLaren, John, 2015. "Trade policy and wage inequality: A structural analysis with occupational and sectoral mobility," Journal of International Economics, Elsevier, vol. 97(2), pages 278-294.
    8. Joel Rodrigue & Kunio Tsuyuhara, 2018. "On‐the‐job‐search, wage dispersion and trade liberalization," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 51(2), pages 452-482, May.
    9. Endoh, Masahiro, 2021. "The effect of import competition on labor income inequality through firm and worker heterogeneity in the Japanese manufacturing sector," Japan and the World Economy, Elsevier, vol. 59(C).
    10. Masahiro Endoh, 2020. "Trade Effects on Wage Inequality through Worker and Firm Heterogeneity in Japan," Keio-IES Discussion Paper Series 2020-017, Institute for Economics Studies, Keio University.

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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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