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Worker-Specific Effects of Globalisation

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  • Hartmut Egger
  • Udo Kreickemeier

Abstract

This paper sets up a general equilibrium model, in which firms are heterogeneous due to productivity differences and workers have fairness preferences and hence provide full effort only if their factor return is sufficiently high. With the wage considered to be fair by workers depending on the operating profits of the firm in which they are employed, more productive firms in this setting are not only larger and make higher profits but they also have to pay higher wages due to rent-sharing. This mechanism leads to wage differentiation even if all workers share the same individual characteristics. We use this framework to study worker-specific effects of trade between two symmetric countries. Exporters in this setting make higher operating profits and hence have to pay higher wages than non-exporters. This exporter wage premium provides a source for losses from trade and, all other things equal, makes a negative employment effect of trade more likely. Furthermore, it contributes significantly to a general increase in intra-group income inequality among production workers when a country moves from autarky to trade.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2826.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2826

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Keywords: heterogeneous firms; wage inequality; fair wages; involuntary unemployment;

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References

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  1. Helpman, Elhanan & Itskhoki, Oleg & Redding, Stephen J., 2009. "Inequality and Unemployment in a Global Economy," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7353, C.E.P.R. Discussion Papers.
  2. Hartmut Egger & Udo Kreickemeier, 2008. "Fairness, Trade, and Inequality," CESifo Working Paper Series 2344, CESifo Group Munich.
  3. David G. Blanchflower & Andrew J. Oswald & Peter Sanfey, 1992. "Wages, Profits and Rent-Sharing," NBER Working Papers 4222, National Bureau of Economic Research, Inc.
  4. Sofronis Clerides & Saul Lach & James Tybout, 1996. "Is "learning-by-exporting" important? Micro-dynamic evidence from Colombia, Mexico and Morocco," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 96-30, Board of Governors of the Federal Reserve System (U.S.).
  5. Ernst Fehr & Simon Gaechter, 2000. "Fairness and Retaliation: The Economics of Reciprocity," CESifo Working Paper Series 336, CESifo Group Munich.
  6. Thorsten Schank & Claus Schnabel & Joachim Wagner, 2006. "Do exporters really pay higher wages? First evidence from German linked employer-employee data," Working Paper Series in Economics, University of Lüneburg, Institute of Economics 28, University of Lüneburg, Institute of Economics.
  7. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  8. Jean-Pierre Danthine & André Kurmann, 2005. "The Macroeconomic Consequences of Reciprocity in Labor Relations," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP), Université de Lausanne, Faculté des HEC, DEEP 05.08, Université de Lausanne, Faculté des HEC, DEEP.
  9. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, American Economic Association, vol. 72(3), pages 389-405, June.
  10. Kenneth R. Troske & Kimberly Bayard, 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, American Economic Association, vol. 89(2), pages 99-103, May.
  11. Bernard, Andrew B. & Bradford Jensen, J., 1999. "Exceptional exporter performance: cause, effect, or both?," Journal of International Economics, Elsevier, Elsevier, vol. 47(1), pages 1-25, February.
  12. Hartmut Egger & Udo Kreickemeier, 2009. "Firm Heterogeneity And The Labor Market Effects Of Trade Liberalization," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(1), pages 187-216, 02.
  13. Kreickemeier, Udo & Nelson, Douglas, 2006. "Fair wages, unemployment and technological change in a global economy," Journal of International Economics, Elsevier, Elsevier, vol. 70(2), pages 451-469, December.
  14. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555 Elsevier.
  15. Mary Amiti & Donald R. Davis, 2012. "Trade, Firms, and Wages: Theory and Evidence," Review of Economic Studies, Oxford University Press, vol. 79(1), pages 1-36.
  16. Giulia Faggio & Kjell Salvanes & John Van Reenen, 2007. "The Evolution of Inequality in Productivity and Wages: Panel Data Evidence," CEP Discussion Papers dp0821, Centre for Economic Performance, LSE.
  17. Richard Baldwin, 2005. "Heterogeneous Firms and Trade: Testable and Untestable Properties of the Melitz Model," NBER Working Papers 11471, National Bureau of Economic Research, Inc.
  18. Barth, Erling & Lucifora, Claudio, 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).
  19. David H. Autor & Lawrence F. Katz & Melissa S. Kearney, 2008. "Trends in U.S. Wage Inequality: Revising the Revisionists," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 300-323, May.
  20. Donald R. Davis & James Harrigan, 2007. "Good jobs, bad jobs, and trade liberalization," Discussion Papers, Columbia University, Department of Economics 0607-07, Columbia University, Department of Economics.
  21. Arai, Mahmood, 1999. "Wages, Profits and Capital Intensity: Evidence from Matched Worker-Firm Data," Research Papers in Economics, Stockholm University, Department of Economics 1999:3, Stockholm University, Department of Economics.
  22. 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.
  23. Hilderth, A.K. & Oswald, A.J., 1993. "Rent-Sharing and Wages: Evidence form Company and Establishment Panels," Economics Series Working Papers 99154, University of Oxford, Department of Economics.
  24. Akerlof, George A & Yellen, Janet L, 1988. "Fairness and Unemployment," American Economic Review, American Economic Association, American Economic Association, vol. 78(2), pages 44-49, May.
  25. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 97(4), pages 543-69, November.
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Citations

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Cited by:
  1. Achim Schmillen, 2011. "The Exporter Wage Premium Reconsidered - Destinations, Distances and Linked Employer-Employee Data," Working Papers, Bavarian Graduate Program in Economics (BGPE) 111, Bavarian Graduate Program in Economics (BGPE).
  2. Lo Turco, Alessia & Maggioni, Daniela & Picchio, Matteo, 2012. "Offshoring and Job Stability: Evidence from Italian Manufacturing," IZA Discussion Papers 6514, Institute for the Study of Labor (IZA).
  3. Baumgarten, Daniel, 2013. "Exporters and the rise in wage inequality: Evidence from German linked employer–employee data," Journal of International Economics, Elsevier, Elsevier, vol. 90(1), pages 201-217.
  4. Braun, Sebastian, 2011. "Unionisation structures, productivity and firm performance: New insights from a heterogeneous firm model," Labour Economics, Elsevier, Elsevier, vol. 18(1), pages 120-129, January.

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