We develop a neoclassical trade model with heterogeneous factors of production. We consider a world with two factors, "managers" and "worker", each with a given distribution of ability levels. Production combines a manager of some type with a group of workers. The productivity of a unit depends on the types of the two factors, with complementarity between the two. We examine the sorting of factors to sectors and the matching of factors within sectors, and we use to model to study the determinants of the trade pattern and the effects of trade on the wage and salary distributions and on measured productivity. Finally, we extend the model to include search frictions and consider the distribution of unemployment rates.
To download the PDF version of the working paper click here.