Abstract
This paper studies multi-product firms with two factors of production: unskilled and skilled labor (talent). Creating new products is skill intensive while production is less skill intensive. We show here a new effect: an increase in the skilled labor supply, relatively to unskilled labor, could reduce the number of products but increase the average scale per product. The relative strength of this effect depends on the degree of firm heterogeneity and the extent to which we allow multiple products within the firm. Moreover, the survival cut-off can be higher (or lower) if the fixed costs (or the variable costs) are lower. Economic integration influences this survival cut-off only through the ratio of skilled labor to unskilled labor, but not the market size. This policy is welfare enhancing but the gains might be non uniformly distributed across agents. The paper also sheds light on the pattern of trade with only one industry.
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