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International Competition, Slim Firms and Wage Inequality

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Author Info
Klaus Wälde ()
Pia Weiss ()

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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 goods markets. The 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 losing in relative terms can even lose in real terms. From a quantitative perspective, international competition is shown to be the more plausible cause of rising wage inequality.

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Paper provided by CESifo GmbH in its series CESifo Working Paper Series with number CESifo Working Paper No. 1254.

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Date of creation: 2004
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Handle: RePEc:ces:ceswps:_1254

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Related research
Keywords: international trade wage inequality foreign competition free entry and exit

Find related papers by JEL classification:
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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    Other versions:
  4. Walde, Klaus, 2000. "Egalitarian and elitist education systems as the basis for international differences in wage inequality," European Journal of Political Economy, Elsevier, vol. 16(3), pages 445-468, September. [Downloadable!] (restricted)
    Other versions:
  5. 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. [Downloadable!] (restricted)
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    Other versions:
  7. 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. [Downloadable!] (restricted)
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    Other versions:
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  15. Flam, Harry & Helpman, Elhanan, 1987. "Industrial policy under monopolistic competition," Journal of International Economics, Elsevier, vol. 22(1-2), pages 79-102, February. [Downloadable!] (restricted)
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