Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 1249: Globalization and the Jobs Ladder

Carl Davidson (), Fredrik Heyman (), Steven Matusz , Fredrik Sjöholm () and Susan Chun Zhu
Additional contact information
Carl Davidson: Department of Economics, Postal: Michigan State University, East Lansing
Fredrik Heyman: Research Institute of Industrial Economics (IFN), Postal: and Department of Economics, Lund University
Steven Matusz: Department of Economics, Postal: Michigan State University, East Lansing
Fredrik Sjöholm: Department of Economics, Lund University, Postal: and Research Institute of Industrial Economics, Stockholm, Sweden
Susan Chun Zhu: Department of Economics, Postal: Michigan State University, East Lansing

Abstract: Globalization might affect the mix of jobs available in an economy and the rate at which workers gain skills. We develop a model in which firms differ in terms of productivity and skills and use the model to examine how globalization affects the wage distribution and the career path of workers as they move up the jobs ladder. There are two types of skills that determine a worker’s productivity in the model: the ability to work with the appropriate technology and the ability to facilitate international commerce. Workers imperfectly acquire these skills on the job. Firms cannot costlessly observe the skills embodied in a worker but can observe each potential recruit’s employment history. In equilibrium, firms self-select into groups that use different networks to fill vacancies. Our results indicate that although falling trade costs may result in greater wage inequality, if trade costs are initially high, it can also lead to a wider path up the jobs ladders and less time spent in entry level jobs. The key assumptions and predictions are confirmed in data on recruitments and job mobility in Sweden.

Keywords: Job Ladders; Globalization; Wages; Inequality; Export

JEL-codes: F10; F20; J30

53 pages, November 19, 2018

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