Working Paper: CEPR ID: DP9341
Authors: Gene Grossman
Abstract: In this paper, I survey the recent theoretical literature that incorporates heterogeneous labor into models of international trade. The models with heterogeneous labor have been used to study how talent dispersion can be a source of comparative advantage, how the opening of trade affects the full distribution of wages, and how trade affects industry productivity and efficiency via its impact on sorting and matching in the labor market. Some of the most recent contributions also introduce labor market frictions to study the effects of trade on structural unemployment and on mismatch between workers and firms.
Keywords: heterogeneous labor; international trade; matching; productivity; sorting; wage distribution
JEL Codes: F11; F16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| dispersion of worker skills (J69) | comparative advantage (F11) |
| trade (F19) | full distribution of wages (D39) |
| trade (F19) | sorting of workers into different industries (J69) |
| sorting of workers into different industries (J69) | wage changes across the entire wage spectrum (J31) |
| trade (F19) | industry productivity and efficiency (O49) |
| sorting and matching of heterogeneous workers with firms (J68) | industry productivity and efficiency (O49) |
| mismatches (C78) | structural unemployment (J64) |
| trade-induced mismatches (F16) | inefficiencies in the labor market (J49) |
| inefficiencies in the labor market (J49) | overall economic performance (P47) |