Sorting it out: International trade with heterogeneous workers

Each worker brings a bundle of skills to the workplace, for example, quantitative and communication skills. Since employers must take this bundle as a package deal, they choose workers with just the right mix of skills. We show that international differences in the distribution of worker skill bundles - for example, Japan's abundance of workers with a modest mix of both quantitative and teamwork skills - have important implications for international trade, industrial structure, and domestic income distribution. Formally, we model two-dimensional worker heterogeneity and show that the second moments of the distribution of skills are critical, as in the Roy model.