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Product Market Integration, Rents and Wage Inequality

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  • Torben M. Andersen
  • Allan Sørensen

Abstract

Globalization in the form of product market integration affects labour markets and produces winners and losers. While there are aggregate gains, it is in general ambiguous how inequality is affected. We explore this issue in a Ricardian model and show that it depends on the balance between "protection" and "specialization" rents. In particular, wage inequality among similar workers (residual wage inequality) may be U-shaped, at first decreasing and then increasing in the process of product market integration. Consequently, there may be gains in both the efficiency and the equity dimension until integration reaches a certain level at which a trade-off arises.
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Suggested Citation

  • Torben M. Andersen & Allan Sørensen, 2011. "Product Market Integration, Rents and Wage Inequality," Review of International Economics, Wiley Blackwell, vol. 19(4), pages 595-608, September.
    • Handle: RePEc:bla:reviec:v:19:y:2011:i:4:p:595-608
    DOI: j.1467-9396.2011.00968.x
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    File URL: http://hdl.handle.net/10.1111/j.1467-9396.2011.00968.x
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    Cited by:

    1. Jørn Rattsø & Hildegunn E. Stokke, 2013. "Trade, Skill Biased Technical Change and Wage Inequality in South Africa," Review of International Economics, Wiley Blackwell, vol. 21(3), pages 419-431, August.
    2. Ribeiro, Ana Paula & Carvalho, Vitor & Ferreira, Mariana, 2020. "The effect of globalization on wage inequality: an application to the European Union before the Great Recession," MPRA Paper 110697, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J39 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Other
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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