All We Need is Love? Trade-Adjustment, Inequality, and the Role of the Partner

We examine the impact of Germany’s trade integration with China and Eastern Europe from 1993 through 2008 on earnings inequality between households. We especially focus our attention on the role of assortative mating for the magnitude of this impact. Our analysis demonstrates that the trade shock worked towards an increase of earnings inequality, both in the short and in the medium run. Moreover, we illustrate that mating has become increasingly assortative in Germany, especially among low-skilled workers. The results of a counterfactual experiment reveal that this surge in the assortativeness of mating might deepen the negative impact of future trade shocks on earnings inequality between households and might consequently also reduce potential gains from trade

Domestic multinationals, foreign affiliates, and labour demand elasticities

Using information on a panel of multinational firms operating in the United Kingdom from 1996 to 2005, we find that labour demand in domestic multinationals is less sensitive to labour cost changes than in foreign multinationals. This difference in the wage elasticity of labour demand persists even when we control for the skill intensity of firms or their level of intangible assets. This is in line with an interpretation that the provision of headquarter services in domestic multinational firms protects against strong fluctuations in labour demand. Overall, our results suggest that the wage elasticity of labour demand is about 40 percent lower in domestic than in foreign multinationals