We argue that the narrative of variety-induced gains from trade in differentiated goods needs revision. If producing differentiated varieties of a good requires differentiated skills and if the work force is heterogeneous in these skills, then firms are likely to have monopsony power. We show...

The US labour market has experienced a remarkable polarization in the 1980s and 1990s. Moreover, recent empirical work has documented a sharp increase in the wealth to income ratio in that period. Contemporary to these inequality trends, the US faced a fast technological catch-up as European...