I model endogenous horizontal and vertical product differentiation with arbitrarily many heterogeneous firms. Firms are asymmetric in that they differ in their marginal costs. I prove that under an equilibrium refinement, all economically relevant firm outcomes are uniquely determined across all strict subgame perfect Nash equilibria. There are two central results. First, a firm’s price, market share, and profit are independent of its neighbors’ marginal costs, conditional on the average marginal cost in the market. Second, more productive firms are more isolated, all else equal. In particular, the distance between two firms is strictly decreasing in their average marginal cost.

What are the consequences of international trade on the skill premium? We incorporate skill-intensity differences across firms and sectors into a standard model of international trade. Reductions in trade costs reallocate factors toward a country's comparative advantage sectors, increasing the skill premium in countries with a comparative advantage in skill-intensive sectors and decreasing it elsewhere. Reductions in trade costs also reallocate factors toward more productive and skill-intensive firms within sectors and toward skill-intensive sectors in all countries, increasing the skill premium in all countries. Quantitatively, we find that trade liberalization increases the skill premium in almost all countries.

This paper develops tools and techniques to analyze the determinants of factor allocation and factor prices in economies with a large number of goods and factors. The main results of our paper characterize sufficient conditions for robust monotone comparative statics predictions in a Roy-like assignment model. These general results are then used to generate new insights about the consequences of globalization.

What is the effect of the real minimum wage on wages and inequality? I develop a theory that nests the race between education and technology. The theory predicts that the effect of changes in minimum wages is initially small but grows over time. I present empirical evidence of these dynamic effects: the elasticity of real wages grows substantially over a three-year period. I show that minimum wages help rationalize a considerable decline in real wages of low-education workers in the 1980s and play a role in shaping the evolution of the U.S. college premium.

The theory of comparative advantage is at the core of neoclassical trade theory. Yet we know little about its implications for how nations should conduct their trade policy. For example, should import sectors with weaker comparative advantage be protected more? Conversely, should export sectors with stronger comparative advantage be subsidized less? In this article we take a first stab at exploring these issues. Our main results imply that in the context of a canonical Ricardian model, optimal import tariffs should be uniform, whereas optimal export subsidies should be weakly decreasing with respect to comparative advantage, reflecting the fact that countries have more room to manipulate prices in their comparative-advantage sectors. Quantitative exercises suggest substantial gains from such policies relative to simpler tax schedules.

What are the unequal effects of changes in consumer prices on the cost of living? In the context of changes in import prices (driven by, e.g. changes in trade costs or exchange rates), most analyses focus on variation across households in initial expenditure shares on imported goods. However, the unequal welfare effects of non-marginal foreign price changes also depend on differences in how consumers substitute between imported and domestic goods, on which there is scant evidence. Using data from Switzerland surrounding the 2015 appreciation of the Swiss franc, we provide evidence that lower-income households have higher price elasticities. We quantify the contribution of heterogeneous elasticities for the unequal welfare effects of observed price changes between 2014 and 2015 and for counterfactual shocks to the mean and dispersion of import price changes.

A salient feature of globalization in recent decades is the emergence of “global supply chains” in which different countries specialize in different stages of a sequential production process. In Costinot, Vogel and Wang (2011) (CVW hereafter), we have developed a simple theory of trade with sequential production to shed light on how global supply chains affect the interdependence of nations. In this paper we develop a multi-factor extension of CVW to explore how the emergence of global supply chains may affect wage inequality within countries.

In this paper, we study how occupation (or industry) tradability shapes local labor‐market adjustment to immigration. Theoretically, we derive a simple condition under which the arrival of foreign‐born labor into a region crowds native‐born workers out of (or into) immigrant‐intensive jobs, thus lowering (or raising) relative wages in these occupations, and we explain why this process differs within tradable versus within nontradable activities. Using data for U.S. commuting zones over the period 1980–2012, we find—consistent with our theory—that a local influx of immigrants crowds out employment of native‐born workers in more relative to less immigrant‐intensive nontradable jobs, but has no such effect across tradable occupations. Further analysis of occupation labor payments is consistent with adjustment to immigration within tradables occurring more through changes in output (versus changes in prices) when compared to adjustment within nontradables, thereby confirming our model's theoretical mechanism. We then use the model to explore the quantitative consequences of counterfactual changes in U.S. immigration on real wages at the occupation and region level.