Working Paper: NBER ID: w19513
Authors: Gene M. 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: Trade; Heterogeneous Factors; Wage Distribution; Earnings Inequality
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 (F19) | sorting of heterogeneous workers and managers (J79) |
| sorting of heterogeneous workers and managers (J79) | wage and salary distributions (J31) |
| international trade (F19) | wage and salary distributions (J31) |
| trade liberalization (F13) | wage inequality across sectors (J31) |
| trade patterns (F10) | comparative advantages based on differentiated factors (F12) |
| comparative advantages based on differentiated factors (F12) | income distribution (D31) |
| relative price changes (P22) | wage inequality (J31) |
| trade (F19) | within-sector income inequality (D31) |
| relative elasticities of output with respect to labor quality and quantity (J24) | within-sector income inequality (D31) |