Presentation of the paper :

Directed Search, Firm Dynamics and Wage Inequality in the Global Economy

Speaker:

Giammario Impullitti

University of Cambridge

Abstract

Increasing within-group inequality plays an important role in explaining overall inequality trends in industrialized societies. We investigate the role of international trade for this pattern. To this end, we incorporate directed labor market search and convex adjustment costs into a general equilibrium two-country model of international trade with heterogeneous firms and homogeneous workers. First, we offer a tractable static general equilibrium model that yields a non-degenerate distribution of wages reflecting firms' productivities and their export involvement. Trade liberalization increases the real wages of all workers and boosts overall welfare. However, by changing the allocation of workers across firms, it may result in higher inequality and unemployment. Second, we generalize the model to the dynamic case, where wage inequality across and within firms results from heterogeneity with respect to firm-level growth rates. Fitting the model to capture key features of German firm dynamics and wage inequality based on unified social security data, we investigate how falling trade costs and labor market reforms interact to shape firms' adjustment behavior and aggregate labor market outcomes.

Coauthors: Gabriel Felbermayr (University of Munich e CESifo) e Julien Prat (CNRS (CREST), Parigi, Institute for Economic Analysis (CSIC), Barcellona e Barcelona Graduate School of Economics, Barcellona).