American Economic Journal: Microeconomics: Vol. 6 No. 3 (August 2014)

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Selection into Trade and Wage Inequality

Article Citation

Sampson, Thomas. 2014. "Selection into Trade and Wage Inequality." American Economic Journal: Microeconomics, 6(3): 157-202.

DOI: 10.1257/mic.6.3.157

Abstract

This paper analyzes how intra-industry trade affects the wage distribution when both workers and firms are heterogeneous. Positive assortative matching between worker skill and firm technology generates an employer size-wage premium and an exporter wage premium. Fixed export costs cause the selection of advanced technology, high skill firms into exporting and trade shifts the firm technology distribution upwards. Consequently, trade increases skill demand and wage inequality in all countries, both on aggregate and within the upper tail of the wage distribution. This holds when firms receive random technology draws and when technology depends on firm level R&D.

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Authors

Sampson, Thomas (CEP, London School of Economics and Political Science)

JEL Classifications

F16: Trade and Labor Market Interactions
J23: Labor Demand
J24: Human Capital; Skills; Occupational Choice; Labor Productivity
J31: Wage Level and Structure; Wage Differentials

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