Globalization and Labor Market Outcomes: Wage Bargaining, Search Frictions, and Firm Heterogeneity * We introduce search unemployment à la Pissarides into Melitz' (2003) model of trade with heterogeneous firms. We allow wages to be individually or collectively bargained and analytically solve for the equilibrium. We find that the selection effect of trade influences labor market outcomes. Trade liberalization lowers unemployment and raises real wages as long as it improves aggregate productivity net of transport costs. We show that this condition is likely to be met by a reduction in variable trade costs or the entry of new trading countries. On the other hand, the gains from a reduction in fixed market access costs are more elusive. Calibrating the model shows that the positive impact of trade openness on employment is significant when wages are bargained at the individual level but much smaller when wages are bargained at the collective level. JEL Classification:F12, F15, F16

This paper documents a robust empirical regularity: in the long-run, higher trade openness is causally associated to a lower structural rate of unemployment. We establish this fact using: (i) panel data from 20 OECD countries, (ii) cross-sectional data on a larger set of countries. The time structure of the panel data allows to deal with endogeneity concerns, whereas cross-sectional data make it possible to instrument openness by its geographical component. In both setups, we carefully purge the data from business cycle eects, include a host of institutional and geographical variables, and control for within-country trade. Our main nding is robust to various denitions of unemployment rates and openness measures. The preferred specication suggests that a 10 percent increase in total trade openness reduces unemployment by about one percentage point. Moreover, we show that openness aects unemployment mainly through its eect on TFP and that labor market institutions do not appear to condition the eect of openness.

We solve a long-term contracting problem with symmetric uncertainty about the agent's quality and a hidden action of the agent. As information about quality accumulates, incentives become easier to provide because the agent has less room to manipulate the principal's beliefs. This result is opposite to that in the literature on "career concerns" in which incentives via short-term contracts become harder to provide as the agent's quality is revealed over time. 4 We establish this by means of a proposition in Section 4, simulation in Section 5, and, finally, in Appendix C, where we use a stylized model to show that quality and output uncertainty are isomorphic only when there is a single transfer. 5 He et al. (2012) thoroughly investigate how learning affects the contracting problem of Hölmstrom and Milgrom (1987). They find that, as opposed to Hölmstrom and Milgrom (1987), whose contract can be implemented by a constant equity share, the optimal contract under learning exhibits option-like features.