Occupational Choice, Aggregate Productivity, and Trade

We propose occupational decisions of heterogeneous individuals as an alternative mechanism of explaining the distribution of firm productivities emphasized by empirical studies. Thus, we integrate the frameworks of Melitz (2003), and of Manasse and Turrini (2001) that establish the theoretical base of trade models with heterogeneous firms. Our model is technically much simpler than the Melitz approach while preserving the main results on firm-selection effects due to international market integration. Our approach paves the way for detailed analysis of institutions in a heterogeneous firm model to better understand the link between institutions and an economy’s productivity distribution.intra-industry trade, heterogeneous productivities, firm selection, occupational choice

Factor-Biased Technical Change and Specialization Patterns

We analyze the medium- and long-run effects of international integration of capital markets on specialization patterns of countries. For that purpose, we incorporate induced technical change into a Heckscher-Ohlin model with a continuum of final goods. This provides a comprehensive theory that explains the dynamics of comparative advantages based on differences in effective factor endowments. Our model constitutes an appropriate framework for understanding the changes in industrial structure of foreign trade observed, e.g., in the CEE countries over the last two decades. In addition, our approach provides a theoretical foundation for the empirical prospective comparative advantage index (Savin and Winker 2009) with new insights into the future dynamics of comparative advantages. Eventually, the model may serve as a basis to set development priorities in countries being in the period of transition.Factor-biased technical change, continuum of goods, comparative advantage, factor mobility, innovation, knowledge spillovers

Immigration and two-component unemployment

We analyze the employment effects of immigration within a model that accounts for several stylized facts of the German labor market. The co-existence of positive wage spans and unemployment is explained by wage rigidities that are simultaneously caused by effciency-wage setting and minimum wages. The observed positive relation between wage spans and minimum wages results from employment shifts from low-wage to high-wage sectors. Employment effects of immigration are opposite to those of a rise in the minimum wage. For plausible parameter values, immigration raises employment of the home labor force even if all immigrants find employment. --immigration,unemployment,effciency wage,wage drift,wage span

Are US wages really determined by European Labor Market Institutions?

This paper integrates institutionally determined wage rigidities into an otherwise standard Heckscher Ohlin model of international trade. It accounts for individual heterogeneities with respect to innate abilities and analyses their implications for individual wage incomes and for individual decisions about acquiring education. The model provides a foundation for the conjectures the development of wages and unemployment rates derived from comparative cross country studies that do not consistently account for the global general equilibrium links affecting factor prices. It does not support the view that global equilibrium links cause US wages to be determined by European wage rigidities or insulate the US economy from exogenous labor supply shocks