Increasing wage inequality between similar workers plays an important role for overall inequality trends in industrialized societies. To analyze this pattern, we incorporate directed labor market search into a dynamic model of international trade with heterogeneous firms and homogeneous workers....

We study the equilibrium determinants of firm-level heterogeneity in a model in which firms can affect the variance of their productivity draws at the entry stage and explore the implications in closed and open economy. By allowing firms to choose the size of their investment in innovation...

The declining labor share in national income and rising inequality over the last four decades raise questions about causes of these trends. In order to explain these trends, we develop a theoretical model that links intra-industry distribution of wages to variation in market power of firms. The...

This paper provides evidence that labor reallocation from the manufacturing into the non-manufacturing sector causes an increase in sorting of high-skilled (low-skilled) workers into high-paying (low-paying) firms and thereby triggers a rise in wage inequality. I use data on 50% of all West...