Inequality and Unemployment in a Global Economy

44 Pages Posted: 26 Aug 2009

See all articles by Elhanan Helpman

Elhanan Helpman

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Oleg Itskhoki

Princeton University - Department of Economics

Stephen J. Redding

Princeton University

Multiple version iconThere are 2 versions of this paper

Date Written: July 2009

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.

Keywords: International Trade, Risk, Unemployment, Wage Inequality

JEL Classification: E24, F12, F16

Suggested Citation

Helpman, Elhanan and Itskhoki, Oleg and Redding, Stephen J., Inequality and Unemployment in a Global Economy (July 2009). CEPR Discussion Paper No. DP7353. Available at SSRN: https://ssrn.com/abstract=1461982

Elhanan Helpman (Contact Author)

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States
617-495-4690 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Oleg Itskhoki

Princeton University - Department of Economics ( email )

Fisher 306
Princeton, NJ 08544-1021
United States
+1 (609) 258-5493 (Phone)

HOME PAGE: http://www.princeton.edu/~itskhoki

Stephen J. Redding

Princeton University ( email )

Princeton, NJ 08544-1021
United States

HOME PAGE: http://www.princeton.edu/~reddings/

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