Job Market Paper

  • Trade and Real Wages of the Rich and Poor: Cross-Country Evidence  Abstract

    Trade liberalization affects real-wage inequality through two channels: the distribution of nominal wages across workers and, if the rich and the poor consume different bundles of goods, the distribution of price indices across consumers. I provide a unified framework incorporating both channels by allowing for non-homothetic preferences and worker heterogeneity across jobs. Because skill-intensive goods are also high-income elastic in the data, I find an intuitive, previously unexplored, and strong interaction between the two channels. I parametrize the model for 40 countries/regions using sector-level trade and production data, and find that trade cost reductions decrease the relative nominal wage of the poor and the relative price index for the poor in all countries/regions. On net, real-wage inequality falls everywhere. Close

Working Papers

  • Trade and Within-Sector Wage Dispersion (with Feiran Zhang) Abstract

    This paper proposes a new mechanism through which trade liberalization affects income inequality within a country: the use of imported inputs. Intuitively, a firm with higher initial productivity is better at using higher quality foreign inputs. This justifies paying the fixed costs for a larger set of imported inputs when input tariff liberalization decreases their relative price. The firm becomes more import intensive, which enhances its productivity advantage. As a result, the firm hires higher quality workers, produces higher quality products and pays higher wages to its workers, increasing within-sector wage dispersion. We find that both the mean and the dispersion of the distribution of firm productivity, markup and size went up during a period when China reduced its tariffs on imported inputs. More importantly, these results still hold when we consider the subset of firms that survived throughout the sample period, from 1998 to 2007. In addition, we develop a partial-equilibrium, heterogeneous-firm model with endogenous imported inputs and labor quality choice that is consistent with these observations. Finally, we provide empirical evidence that supports the model's prediction that the differential change in the import intensity of firms with different productivity levels explains these patterns.  Close

Zheli He
Ph.D. Candidate
Department of Economics
1022 International Affairs Building
420 West 118th Street
New York City, NY 10027

Phone: (314) 372-5061