International trade and migration in the presence of sector-specific labor quality pricing distortions

In one of two sectors, there are labor quality pricing distortions in the sense that labor obtains the average rather than marginal product. This may be due to a failure on the part of employers to observe individual labor quality or due to an income redistributing union. Relatively low quality workers are in equilibrium employed in the sector characterized by average productivity wage setting. International differences in the quality distributions of the labor force are shown to be a source of comparative advantage and hence a determinant of international trade. The country that imports the good produced by relatively low quality workers may lose from international trade. Immigration by low quality workers may equally lower the welfare of a country's original inhabitants. As a result, a country generally benefits from restricting the immigration of very low quality workers.