Inequality and Unemployment in a Global Economy
Elhanan Helpman, Oleg Itskhoki, Stephen Redding
Econometrica · 2010 · Volume 78 · Issue 4
Abstract
This paper develops a new framework for examining the determinants of wage distributions that emphasizes within-industry reallocation, labor market frictions, and differences in workforce composition across firms. More productive firms pay higher wages and exporting increases the wage paid by a firm with a given productivity. The opening of trade enhances wage inequality and can either raise or reduce unemployment. While wage inequality is higher in a trade equilibrium than in autarky, gradual trade liberalization first increases and later decreases inequality.
Keywords
Wage inequality, international trade, risk, unemployment
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