Entrepreneurs,jobs, and trade |
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| Institution: | 1. Department of Economics, University of Florida, Gainesville, FL 32611, Unites States;2. Department of Economics, Louisiana State University, Baton Rouge, LA 70803, United States;1. University of Southern California, United States;2. Singapore Management University, Singapore;1. Microsoft Research, Redmond, WA 98052, United States;2. Department of Economics, University of Missouri, Columbia, MO 65211, United States;1. Wang Yanan Institute for Studies in Economics, MOE Key Laboratory of Econometrics, Fujian Key Laboratory of Statistical Science, Xiamen University, Xiamen, Fujian 361005, China;2. Department of Economics, Texas A&M University, College Station, TX 77843, USA;3. ISEM, Capital University of Economics and Business, Beijing, China;4. Department of Agricultural Economics, Texas A&M University, College Station, TX 77843, USA;5. School of Economics, Fujian Agricultural and Forestry University, Fuzhou, China;1. Research Department, Federal Reserve Bank of Philadelphia, Ten Independence Mall, Philadelphia, PA 19106, United States;2. Department of Economics, Louisiana State University, Business Education Complex, Room 2300, Baton Rouge, LA 70803-6306, United States;1. Department of Economics, University of Toronto, 150 St. George Street, Max Gluskin House, Toronto, M5S3G7, ON, Canada;2. Department of Economics, The University of Texas at Austin, United States |
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| Abstract: | We propose a simple theory of endogenous firm productivity, unemployment, and top income inequality. High-talented individuals choose to become self-employed entrepreneurs and acquire more managerial (human) capital; whereas low-talented individuals become workers and face the prospect of equilibrium unemployment. In a two-country global economy, trade openness raises firm productivity, increases top income inequality, and may reduce welfare in the country exporting the good with lower relative labor-market frictions. Trade openness reduces firm productivity, lowers top income inequality, and necessarily raises welfare in the other country. The effect of trade on unemployment is ambiguous. Unilateral job-creating policies increase welfare in both countries. However, they reduce unemployment and raise top income inequality in the policy-active country; and reduce top income inequality while increasing unemployment in the policy-passive country. |
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| Keywords: | Inequality Managerial capital Search and matching Trade Unemployment |
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