Entrepreneurs, jobs, and trade
Document Type
Article
Publication Date
10-1-2015
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.
Publication Source (Journal or Book title)
European Economic Review
First Page
93
Last Page
112
Recommended Citation
Dinopoulos, E., & Unel, B. (2015). Entrepreneurs, jobs, and trade. European Economic Review, 79, 93-112. https://doi.org/10.1016/j.euroecorev.2015.07.010