Heterogeneous Workers, Trade, and Migration

73 Pages Posted: 6 Nov 2019

See all articles by Inga Heiland

Inga Heiland

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Wilhelm Kohler

University of Tuebingen - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: July 2019

Abstract

We analyze the welfare effects of trade and migration, focusing on two-sided horizontal heterogeneity among workers and firms. We prove the existence of a unique symmetric equilibrium in a two stage game of firm entry (including choice of skill-types) and pricing, involving monopsony power on the labor market and endogenous goods price markups. Trade increases wage markups and worsens the average quality worker-firm matches as well as raising within-firm wage inequality. In contrast, migration lowers wage markups and tends to improve the average matching quality. Our model advocates opening up labor markets simultaneously with trade liberalization.

Keywords: two-way migration, gains from trade, heterogeneous workers

JEL Classification: F120, F160, F220, J240

Suggested Citation

Heiland, Inga and Kohler, Wilhelm K., Heterogeneous Workers, Trade, and Migration (July 2019). CESifo Working Paper No. 7355, Available at SSRN: https://ssrn.com/abstract=3338683 or http://dx.doi.org/10.2139/ssrn.3338683

Inga Heiland (Contact Author)

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

Wilhelm K. Kohler

University of Tuebingen - Department of Economics ( email )

Mohlstrasse 36
D-72074 Tuebingen, 72074
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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