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Inequality and Unemployment in a Global Economy
Author(s) -
Helpman Elhanan,
Itskhoki Oleg,
Redding Stephen
Publication year - 2010
Publication title -
econometrica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 16.7
H-Index - 199
eISSN - 1468-0262
pISSN - 0012-9682
DOI - 10.3982/ecta8640
Subject(s) - autarky , economics , wage inequality , unemployment , labour economics , free trade , inequality , productivity , workforce , wage , efficiency wage , international economics , macroeconomics , market economy , mathematical analysis , mathematics , welfare , economic growth
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.