Redistribution of Trade Gains in the Presence of Firm and Worker Heterogeneity

24 Pages Posted: 19 Sep 2016

See all articles by Marco de Pinto

Marco de Pinto

University of Applied Labour Studies

Date Written: September 2016

Abstract

Trade gains are unequally distributed; in particular, low‐ability workers lose out in terms of wages and employment probability. In this paper, we investigate the impact of redistribution schemes on aggregate and disaggregate variables. To this end, we built a trade model with trade unions, heterogeneous firms and workers. Three redistribution schemes are distinguished: unemployment benefits financed by either a wage tax, a payroll tax or a profit tax. We find that: (i) all three redistribution schemes reduce output per capita; (ii) but the marginal reduction is lowest in the wage tax funding scenario; and (iii) If the profit tax is used, labour demand for low‐ability workers increases.

Suggested Citation

de Pinto, Marco, Redistribution of Trade Gains in the Presence of Firm and Worker Heterogeneity (September 2016). The World Economy, Vol. 39, Issue 9, pp. 1360-1383, 2016, Available at SSRN: https://ssrn.com/abstract=2839994 or http://dx.doi.org/10.1111/twec.12315

Marco De Pinto (Contact Author)

University of Applied Labour Studies ( email )

Seckenheimer Landstr. 16
Mannheim, 68163
Germany

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