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Trade and inequality in a directed search model with firm and worker heterogeneity
Author(s) -
Ritter Moritz
Publication year - 2015
Publication title -
canadian journal of economics/revue canadienne d'économique
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.773
H-Index - 69
eISSN - 1540-5982
pISSN - 0008-4085
DOI - 10.1111/caje.12184
Subject(s) - wage inequality , economics , unemployment , labour economics , free trade , inequality , wage , residual , international economics , macroeconomics , mathematical analysis , mathematics , algorithm , computer science
This paper integrates the insight that exporting firms are typically more productive and employ higher‐skilled workers into a directed search model of the labour market. The model generates a skill premium as well as residual wage inequality among identical workers. A trade liberalization increases the skill premium and likely increases residual inequality among high‐skilled workers. The calibrated model generates results consistent with the prior literature examining the effect of the Canada‐US Free Trade Agreement on the Canadian labour market: a significant decrease in employment in manufacturing, but only a small change in unemployment and wages.