内容摘要：

No. E2020003

Globalization, the Skill Premium, and Income Distribution: The Role of Selection into Entrepreneurship

 

Mingzhi Xu

Jan 2020

 

Abstract ：

This paper proposes a novel channel by which trade affects the skill premium and the house-hold income distribution: the selection-into-entrepreneurship mechanism. Trade liberalization intensifies competition for profit, discouraging less able educated workers from sorting into en-trepreneurship and increasing the skill supply. As a result, the return to college declines, leading college enrollment to decrease. We illustrate this mechanism with a simple trade model and show that while highly talented households optimally respond to export opportunities by engaging in entrepreneurial investment and moving up the income distribution, less able educated house-holds self-select downward along the income distribution, which gradually results in household income polarization. Using Chinese household survey data, we employ a Bartik-type instrument for export expansion to investigate how globalization affects the return to college, the selection into entrepreneurship, and the income distribution. The analysis shows that regions facing more export exposure are associated with a larger drop in the skill premium, a greater selection effect on household business ownership, and a stronger polarization pattern in the household income distribution. The entrepreneurship angle highlighted by this paper offers another lens through which to study the broader impact of trade shocks on workers' occupation sorting and the distri-bution of income.

 

Key Words:

Trade, occupational choice, entrepreneurship, income polarization, China

 

JEL Classification: F11, F16, L2, I24, J24

 

The series of New Structural Economics Working Papers aims to encourage academic scholars and students from all over the world to conduct academic research in the field of new structural economics. Excellent papers are selected irregularly and are offered academic suggestions and recommendation, but the published working papers are not intended to represent official communication from INSE.