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Firm Heterogeneity and the Labour Market Effects of Trade Liberalisation

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Author Info
Hartmut Egger ()
Udo Kreickemeier ()

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Abstract

This paper develops a model that incorporates workers’ fair wage preferences into a general equilibrium framework with monopolistic competition between heterogeneous firms à la Melitz (2003). By assuming that the wage considered to be fair by workers depends on the productivity and thus the economic success of the firm they are working in, we can study the determinants of profits, involuntary unemployment and within-group wage inequality in a unified framework. We use this model to investigate the effects of globalisation. In a benchmark case with identical costs of entering domestic and foreign markets, there are gains from trade accompanied by distributional conflicts, which have so far not been accounted for in the literature: a simultaneous increase of average profits and involuntary unemployment as well as a surge in within-group wage inequality.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 2000.

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Date of creation: 2007
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Handle: RePEc:ces:ceswps:_2000

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Related research
Keywords: heterogeneous firms; fair wages; unemployment; wage inequality; trade liberalisation;

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Find related papers by JEL classification:
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
F15 - International Economics - - Trade - - - Economic Integration
F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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    Other versions:
  2. Hartmut Egger & Volker Grossmann, 2005. "Non-Routine Tasks, Restructuring of Firms, and Wage Inequality Within and Between Skill-Groups," Journal of Economics, Springer, vol. 86(3), pages 197-228, December. [Downloadable!] (restricted)
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  4. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, vol. 97(4), pages 543-69, November. [Downloadable!] (restricted)
  5. Massimo Del Gatto & G. Mion & GIP. Ottaviano, 2007. "Trade Integration, Firm Selection and the Costs of Non-Europe," Working Paper CRENoS 200703, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia. [Downloadable!]
    Other versions:
  6. Davidson, Carl & Matusz, Steven J. & Shevchenko, Andrei, 2008. "Globalization and firm level adjustment with imperfect labor markets," Journal of International Economics, Elsevier, vol. 75(2), pages 295-309, July. [Downloadable!] (restricted)
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  9. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2003. "Plants and Productivity in International Trade," American Economic Review, American Economic Association, vol. 93(4), pages 1268-1290, September. [Downloadable!]
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  12. Erling Barth & Claudio Lucifora, 2006. "Wage Dispersion, Markets and Institutions: The Effects of the Boom in Education on the Wage Structure," IZA Discussion Papers 2181, Institute for the Study of Labor (IZA). [Downloadable!]
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  15. Andrew B. Bernard & Stephen J. Redding & Peter K. Schott, 2007. "Comparative Advantage and Heterogeneous Firms," Review of Economic Studies, Blackwell Publishing, vol. 74(1), pages 31-66, 01. [Downloadable!] (restricted)
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  16. Danthine, Jean-Pierre & Kurmann, Andre, 2006. "Efficiency wages revisited: The internal reference perspective," Economics Letters, Elsevier, vol. 90(2), pages 278-284, February. [Downloadable!] (restricted)
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  17. Steven J. Matusz, 1994. "International Trade Policy in a Model of Unemployment and Wage Differentials," Canadian Journal of Economics, Canadian Economics Association, vol. 27(4), pages 939-49, November. [Downloadable!] (restricted)
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  21. Montagna, Catia, 2001. "Efficiency Gaps, Love of Variety and International Trade," Economica, London School of Economics and Political Science, vol. 68(269), pages 27-44, February. [Downloadable!] (restricted)
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  24. Gabriel Felbermayr & Julien Prat, 2007. "Product Market Regulation, Firm Selection and Unemployment," IZA Discussion Papers 2754, Institute for the Study of Labor (IZA). [Downloadable!]
  25. Peter Howitt, 2002. "Looking Inside the Labor Market: A Review Article," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 125-138, March. [Downloadable!] (restricted)
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  27. Kimberly Bayard & Kenneth R. Troske, 1999. "Examining the Employer-Size Wage Premium in the Manufacturing, Retail Trade, and Service Industries Using Employer-Employee Matched Data," American Economic Review, American Economic Association, vol. 89(2), pages 99-103, May. [Downloadable!] (restricted)
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  30. Blanchard, Olivier J & Giavazzi, Francesco, 2001. "Macroeconomic Effects of Regulation and Deregulation in Goods and Labour Markets," CEPR Discussion Papers 2713, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  31. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-42, June. [Downloadable!] (restricted)
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  33. repec:rus:hseeco:122439 is not listed on IDEAS
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Bruno Decreuse & Paul Maarek, 2008. "FDI and the labor share in developing countries: A theory andsome evidence," Working Papers halshs-00333704_v1, HAL. [Downloadable!]
    Other versions:
  2. Paulo Bastos & Natália P. Monteiro & Odd Rune Straume, 2008. "Firm heterogeneity and wages in unionised labour markets: Theory and evidence," NIPE Working Papers 14/2008, NIPE - Universidade do Minho. [Downloadable!]
    Other versions:
  3. Hartmut Egger & Peter Egger & James R. Markusen, 2009. "International Welfare and Employment Linkages Arising from Minimum Wages," NBER Working Papers 15196, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Donald R. Davis & James Harrigan, 2007. "Good jobs, bad jobs, and trade liberalization," Discussion Papers 0607-07, Columbia University, Department of Economics. [Downloadable!]
    Other versions:
  5. Felbermayr, Gabriel & Prat, Julien & Schmerer, Hans-Jörg, 2008. "Globalization and Labor Market Outcomes: Wage Bargaining, Search Frictions, and Firm Heterogeneity," IZA Discussion Papers 3363, Institute for the Study of Labor (IZA). [Downloadable!]
  6. Gabriel Felbermayr & Julien Prat, 2007. "Product Market Regulation, Firm Selection and Unemployment," IZA Discussion Papers 2754, Institute for the Study of Labor (IZA). [Downloadable!]
  7. Elhanan Helpman & Oleg Itskhoki & Stephen Redding, 2008. "Inequality and Unemployment in a Global Economy," NBER Working Papers 14478, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  8. Felbermayr, Gabriel & Prat, Julien & Schmerer, Hans-Jörg, 2009. "Trade and Unemployment: What Do the Data Say?," IZA Discussion Papers 4184, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  9. Janiak, Alexandre, 2008. "Welfare in Models of Trade with Heterogeneous Firms," IZA Discussion Papers 3803, Institute for the Study of Labor (IZA). [Downloadable!]
  10. Maria Bas, 2008. "Trade, Technology Adoption and Wage Inequalities: Theory and Evidence," CEP Discussion Papers dp0902, Centre for Economic Performance, LSE. [Downloadable!]
  11. Mary Amiti & Donald R. Davis, 2008. "Trade, Firms, and Wages: Theory and Evidence," NBER Working Papers 14106, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  12. Elhanan Helpman & Oleg Itskhoki & Stephen Redding, 2008. "Wages, Unemployment and Inequality with Heterogeneous Firms and Workers," NBER Working Papers 14122, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Hartmut Egger & Udo Kreickemeier, 2008. "Fairness, Trade, and Inequality," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  14. Mario Larch & Wolfgang Lechthaler, 2009. "Comparative Advantage and Skill-specific Unemployment," Kiel Working Papers 1538, Kiel Institute for the World Economy. [Downloadable!]
    Other versions:
  15. Pravin Krishna & Mine Zeynep Senses, 2009. "International Trade and Labor Income Risk in the United States," NBER Working Papers 14992, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  16. Arnaud Costinot, 2008. "Jobs, Jobs, Jobs: A "New" Perspective on Protectionism," University of California at San Diego, Economics Working Paper Series 2006-05R, Department of Economics, UC San Diego. [Downloadable!]
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