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International competition, downsizing and wage inequality

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  • Walde, Klaus
  • Wei[ss], Pia

Abstract

A country with Cournot competition and free entry experiences an increase of its market size either due to economic growth or international integration of its goods markets. This implied increase in competition leads to shrinking mark-ups and forces firms to reduce overhead costs relative to output. This implies a reallocation at the aggregate level from administrative to productive activities. Relative factor rewards change and wage inequality increases. The factor which loses in relative terms can even lose in real terms. From a quantitative perspective, international competition is demonstrated to be the more plausible cause of rising wage inequality.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 73 (2007)
Issue (Month): 2 (November)
Pages: 396-406

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Handle: RePEc:eee:inecon:v:73:y:2007:i:2:p:396-406

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Web page: http://www.elsevier.com/locate/inca/505552

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References

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  1. Daron Acemoglu, 2000. "Technical Change, Inequality, and the Labor Market," NBER Working Papers 7800, National Bureau of Economic Research, Inc.
  2. Feenstra, Robert C., 2001. "Special issue on trade and wages," Journal of International Economics, Elsevier, vol. 54(1), pages 1-3, June.
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  6. J Peter Neary, 2001. "Foreign Competition and Wage Inequality," Working Papers 200102, School Of Economics, University College Dublin.
  7. Markusen, James R. & Melvin, James R. & Maskus, Keith E. & Kaempfer, William, 1995. "International trade: theory and evidence," MPRA Paper 21989, University Library of Munich, Germany.
  8. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555 Elsevier.
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  12. Johnson, George & Stafford, Frank, 1999. "The labor market implications of international trade," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 34, pages 2215-2288 Elsevier.
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Citations

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Cited by:
  1. Zhang, Jingjing, 2012. "Inflow of labour, producer services and wage inequality," Economics Letters, Elsevier, vol. 117(3), pages 600-603.
  2. Kjell Erik Lommerud & Frode Meland & Odd Rune Straume, 2008. "Mergers and capital flight in unionised oligopolies: Is there scope for a 'national champion' policy?," NIPE Working Papers 10/2008, NIPE - Universidade do Minho.
  3. Catia Montagna & Antonella Nocco, . "Unionisation, International Integration and Selection," Discussion Papers 12/07, University of Nottingham, GEP.
  4. Egger, Hartmut & Etzel, Daniel, 2012. "The impact of trade on employment, welfare, and income distribution in unionized general oligopolistic equilibrium," European Economic Review, Elsevier, vol. 56(6), pages 1119-1135.
  5. Hartmut Egger & Udo Kreickemeier, 2007. "Firm Heterogeneity and the Labour Market Effects of Trade Liberalisation," CESifo Working Paper Series 2000, CESifo Group Munich.
  6. Anwar, Sajid & Rice, John, 2009. "Labour mobility and wage inequality in the presence of endogenous foreign investment," Economic Modelling, Elsevier, vol. 26(6), pages 1135-1139, November.
  7. Anwar, Sajid & Sun, Sizhong & Valadkhani, Abbas, 2013. "International outsourcing of skill intensive tasks and wage inequality," Economic Modelling, Elsevier, vol. 31(C), pages 590-597.
  8. Beladi, Hamid & Chao, Chi-Chur, 2010. "Downsizing, wage inequality and welfare in a developing economy," Research in Economics, Elsevier, vol. 64(4), pages 224-228, December.

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