Working Paper: CEPR ID: DP7353
Authors: Elhanan Helpman; Oleg Itskhoki; Stephen J. Redding
Abstract: This paper develops a new framework for examining the distributional consequences of international trade that incorporates firm and worker heterogeneity, search and matching frictions in the labor market, and screening of workers by firms. Larger firms pay higher wages and exporters pay higher wages than non-exporters. The opening of trade enhances wage inequality and raises unemployment, but expected welfare gains are ensured if workers are risk neutral. And while wage inequality is larger in a trade equilibrium than in autarky, reductions of trade impediments can either raise or reduce wage inequality.
Keywords: International Trade; Risk; Unemployment; Wage Inequality
JEL Codes: E24; F12; F16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Trade liberalization (F13) | Wage inequality (J31) |
| Trade liberalization (F13) | Unemployment (J64) |
| Selection of more productive firms into exporting (F12) | Wage inequality (J31) |
| Trade equilibrium (F14) | Wage inequality (J31) |
| Dispersion in firm productivity (D29) | Wage inequality (J31) |
| Labor market frictions (J29) | Wage dispersion (J31) |
| Labor market frictions (J29) | Unemployment (J64) |
| Opening of trade (F19) | Unemployment (J64) |
| Reduction in matched workers hired (J63) | Unemployment (J64) |
| Increase in matched jobseekers (J68) | Unemployment (J64) |