Trade between symmetric countries, heterogeneous firms, and the skill premium

Abstract

This paper examines the effects of trade liberalization between symmetric countries on the skill premium. I introduce skilled and unskilled labour in a model of trade with heterogeneous firmsà la Melitz (2003) and assume a production technology such that more productive firms are more skill intensive. I show that the effects of trade liberalization on wage inequality crucially depend on the type of trade costs considered and on their initial size. While fixed costs of trade have a potentially non-monotonic effect on the skill premium, a drop in variable trade costs unambiguously and substantially raises wage inequality. JEL classification: F12, F16Commerce entre pays symétriques, firmes hétérogènes, et primeà l'habileté. Ce mémoire examine les effets de la libéralisation du commerce entre pays symétriques sur la primeà l'habileté. On introduit du travail qualifié et non qualifié dans un modèle de commerce avec des firmes hétérogènesà la Melitz (2003), et on postule l'existence d'une technologie de production telle que les firmes plus productives ont une intensité plus grande d'utilisation des habilités. On montre que les effets de la libéralisation du commerce sur l'inégalité des salaires dépendent de manière cruciale du type de coûts du commerce pris en compte et de leur taille initiale. Alors que les coûts fixes du commerce ont un effet potentiellement non-monotone sur la prime aux habiletés, une chute dans les coûts variables du commerce augmente substantiellement et sans ambiguïté l'inégalité des salaires.

Skilled-Labor Intensity Differences Across Firms, Endogenous Product Quality, and Wage Inequality

“…Rather, the within-sector skill premium increases because of the reallocation of production resources towards the higher-skill-intensive firms, and not because of within-plant skill upgrading. In fact, recent empirical findings support this argument: there is no effect of trade liberalization on firm-level skill upgrading (see, for example, Bernard and Jensen 1994;Trefler 2004;Vannoorenberghe 2011;Harrigan and Reshef 2011).…”

“…This paper is related to the literature that analyzes the effect of trade openness on within-sector wage inequality between skill groups (Burstein and Vogel 2010;Harrigan and Reshef 2011;Vannoorenberghe 2011;Sampson 2012, among others). The models presented in these studies consider across-firm differences in productivity with heterogeneous workers or with skill-biased heterogeneous firms, but they exclude the quality dimension.…”

Trade liberalization and the wage gap: the role of vertical linkages and fixed costs

“…Similarly, Harrigan and Reshef (2015) assume a positive relationship between firm-level skill intensity and productivity. However, the model they develop differs from that by Vannoorenberghe (2011) as they assume explicitly free entry of firms and consider two countries that can differ in their relative factor endowments in order to explain why globalization and wage inequality move together in both skill-abundant (North) and skill-scarce (South) countries. In addition, other models that consider firm heterogeneity in productivity levels to describe North-North trade have then been developed to analyze how different types of labor market imperfections shape the way in which trade liberalization affects wage inequality within-industry.…”

“…demand for skill and, consequently, the skill premium in the North and the South. Vannoorenberghe (2011) suggests an alternative mechanism introducing the distinction between skilled and unskilled labor in a North-North model of trade with heterogeneous firms à la Melitz (2003) and assuming that more productive firms are more skill intensive. In Vannoorenberghe (2011), a drop in the variable trade costs raises the wage inequality in the exporting country through two channels.…”

(De)Unionization, Trade Liberalization and Selection

“…Davis and Harrigan (2011) focus on how labour markets adjust to trade liberalization within an efficiency wage model. Vannoorenberghe (2011) analyses the effects of trade liberalization on the skill premium in a Melitz model in which there exist two types of labour. 7 Egger and Etzel (2012) study the effects of trade liberalization within a unionized multi-sector general equilibrium trade model, and find that a movement from autarky to free trade with a fully symmetric trading partner results in a higher employment by reducing wages.…”