Heterogeneous Workers, Trade, and Migration
73 Pages Posted: 6 Nov 2019
Date Written: July 2019
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: Suggested Citation