A competitive search model of the labor market is embedded into a small open economy with firm and worker heterogeneity. Search frictions generate equilibrium unemployment and income inequality between identical workers, in addition to income differences between skill groups. Numerical simulations of the model reveal that an increase in trade is likely to increase within-group inequality and de...

This paper analyzes—both empirically and theoretically—how fluctuations in uncertainty interact with financial market imperfections in determining economic outcomes. In a standard bond-contracting framework, an increase in uncertainty benefits equity holders at the expense of bondholders, and to the extent that firms face significant frictions in financial markets, increased uncertainty implies...

This paper constructs a labor-market matching model with heterogeneous workers. Due to matching frictions, there may be a mismatch of talents within a production team, forcing a worker to specialize in a task at which she is not talented. We consider a partnership model where production takes place in teams consisting of two workers. We characterize the steadystate of the matching equilibrium. ...