Trade and Inequality: From Theory to Estimation

Abstract

While neoclassical theory emphasizes the impact of trade on wage inequality between occupations and sectors, more recent theories of rm heterogeneity point to the impact of trade on wage dispersion within occupations and sectors. Using linked employer-employee data for Brazil, we show that much of overall wage inequality arises within sector-occupations and for workers with similar observable characteristics; this within component is driven by wage dispersion between rms; and wage dispersion between rms is related to rm employment size and trade participation. We then extend the heterogenous-rm model of trade and inequality from Helpman, Itskhoki, and Redding (2010) and estimate it with Brazilian data. We show that the estimated model provides a close approximation to the observed distribution of wages and employment. We use the estimated model to undertake counterfactuals, in which we nd sizable e ects of trade on wage inequality.

Betting On Exports: Trade and Endogenous Heterogeneity

“…As a result, they have workforce of higher average ability and pay higher wages. These models yield an exporter wage premium and have been found to have considerable empirical support (Helpman et al ., ). We therefore now borrow the framework of HIR to study the implications of our theory for wage dispersion.…”

“…In the next two columns, we perform a variance decomposition exercise analogous to that in Helpman et al . (). We decompose the total variance of log wages into a within‐industry and a between‐industry component and show the percentage contribution of the former to the level (in 2007) and growth (between 1997 and 2007) of this variance.…”

“…To this end, we follow Helpman et al . () and run Mincer wage regressions of log wages on a large set of covariates, separately for each year to allow for changes in the effects of these characteristics over time. Then, we use the residuals from these regressions to construct the standard deviation of log residual wages in each industry and year.…”

“…As in Helpman et al . (), we restrict attention to residual wage dispersion, which is closer to the model. Nevertheless, using the standard deviation of log hourly wages yields similar results, which are not reported to save space.…”

Do Higher Wages Reduce Knowledge Worker's Job Mobility? Evidence for Swedish Inventors

“…In practice, the opportunity costs can be sizable. A prime source of opportunity costs are large and persistent wage differentials between firms (Helpman et al, ) implying that even for similar tasks/occupations wages can differ substantially between firms. Accordingly, wage differentials offer room for employees to increase their wage by moving to better paying firms (Frederiksen et al, ; Keith and McWilliams, ; Yankow, ).…”