Working Paper: CEPR ID: DP9680
Authors: Gene Grossman; Elhanan Helpman; Philipp Kircher
Abstract: We develop a neoclassical trade model with heterogeneous factors of production. We consider a world with two factors, labor and "managers", each with a distribution of ability levels. Production combines a manager of some type with a group of workers. The output of a unit depends on the types of the two factors, with complementarity between them, while exhibiting diminishing returns to the number of workers. We examine the sorting of factors to sectors and the matching of factors within sectors, and we use the model to study the determinants of the trade pattern and the effects of trade on the wage and salary distributions. Finally, we extend the model to include search frictions and consider the distribution of employment rates.
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 |
|---|---|
| International trade influences the sorting of heterogeneous workers and managers (F16) | Distribution of wages and managerial salaries (J31) |
| International trade affects earnings inequality (F61) | Wage differentials across sectors (J31) |
| Changes in relative prices due to trade shift the matching functions (F16) | Improved matches for some workers and worsened matches for others (J79) |
| Sorting and matching of heterogeneous workers and managers (C78) | Wage distributions across the income spectrum (D31) |
| International trade influences the allocation of workers and managers to sectors based on their abilities (F16) | Variations in wage inequality within and across sectors (J31) |