Market / Economy / ORIGINAL ARTICLE

Convex Vacancy Creation Costs and On‐the‐Job Search in a Global Economy

Posted On: Jun 12, 2021   |   Posted By: The World Economy

Abstract
Convex vacancy creation costs shape firms' responses to trade liberalization. They induce capacity constraints by increasing firms' costs of production. A profit maximizing firm will therefore not fully meet the increased foreign demand, but serve only a few export markets. More productive firms will export to more countries and profit more from trade liberalization. To get an effect of trade liberalization on wage inequality, we need on‐the‐job search and convex vacancy creation costs because with linear costs trade liberalization affects all wages in equal proportion. Furthermore, with convex vacancy creation costs, not all firms export to all foreign markets even if trade is fully liberalized. This implies that wage inequality under free trade is always higher than under autarky.

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