Globalization, Worker Mobility and Wage Inequality

Abstract

In the present paper, I integrate frictional labor markets with on-the-job search into an otherwise standard heterogeneous firm model of intra-industry trade. Most importantly, I show that the returns to workers’ inter-firm mobility are higher in a trade equilibrium than in autarky. Intuitively, by favoring large and productive firms, international trade amplifies the disparities in profitability between small and large firms. Hence, the returns to labor reallocation across firms rise. In view of the empirically observed higher inter-firm mobility among high-skill workers, this suggests a skill-biased impact of trade liberalization.

Keywords: international trade, heterogeneous firms, on-the-job search, wage inequality, skill premium, inter-firm mobility of workers, sorting

JEL Classification: F16, J31, J62, J63