We introduce unemployment and endogenous selection of workers into
different skill-classes in a trade model with two sectors and
heterogeneous firms. This allows us to study the distributional
consequences and the skill-specific unemployment effects of trade
liberalization. We show that the gains from trade will be
distributed very unequally. While unskilled workers loose in terms
of real wages and employment levels in the skilled labor intensive
sector, skilled workers loose in terms of real wages and
unemployment levels in the unskilled labor intensive sector.
However, the inequality of workers between sectors is much larger
for skilled labor than for unskilled labor. On average, unemployment
among unskilled workers increases when a skill-abundant country
opens up to trade.