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International Competition, Slim Firms and Wage Inequality

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  • Klaus Waelde
  • Pia Weiss

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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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2004/wp-cesifo-2004-08/cesifo1_wp1254.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1254.

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

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

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Citations

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Cited by:
  1. Montagna, Catia & Nocco, Antonella, 2012. "Unionisation, International Integration and Selection," SIRE Discussion Papers, Scottish Institute for Research in Economics (SIRE) 2012-22, Scottish Institute for Research in Economics (SIRE).
  2. Hartmut Egger & Udo Kreickemeier, 2007. "Firm Heterogeneity and the Labour Market Effects of Trade Liberalisation," CESifo Working Paper Series 2000, CESifo Group Munich.
  3. Catia Montagna & Antonella Nocco, 2011. "Unionisation, International Integration and Selection," Dundee Discussion Papers in Economics, Economic Studies, University of Dundee 257, Economic Studies, University of Dundee.
  4. Montagna, Catia & Nocco, Antonella, 2011. "Unionisation, International Integration and Selection," SIRE Discussion Papers, Scottish Institute for Research in Economics (SIRE) 2011-49, Scottish Institute for Research in Economics (SIRE).

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