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Inequality and Unemployment in a Global Economy

Author

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  • Helpman, Elhanan
  • Redding, Stephen
  • Itskhoki, Oleg

Abstract

This paper develops a new framework for examining the distributional consequences of international trade that incorporates firm and worker heterogeneity, search and matching frictions in the labor market, and screening of workers by firms. Larger firms pay higher wages and exporters pay higher wages than non-exporters. The opening of trade enhances wage inequality and raises unemployment, but expected welfare gains are ensured if workers are risk neutral. And while wage inequality is larger in a trade equilibrium than in autarky, reductions of trade impediments can either raise or reduce wage inequality.

Suggested Citation

  • Helpman, Elhanan & Redding, Stephen & Itskhoki, Oleg, 2009. "Inequality and Unemployment in a Global Economy," CEPR Discussion Papers 7353, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:7353
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    More about this item

    Keywords

    International trade; Risk; Unemployment; Wage inequality;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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