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Product Market Competition, Returns to Skill and Wage Inequality

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  • Guadalupe, Maria

Abstract

This Paper shows that increasing product market competition can have a direct impact on the employment relationship and on wage inequality. I develop a simple model in which an increase in product market competition increases returns to skill through the effect of competition on the sensitivity of profits to cost reductions. I then show empirically that the dispersion of wages increase with competition using a large panel of United Kingdom workers with complete work histories. I identify the impact of competition on returns to skill in the panel, using two exogenous measures of competition provided by two quasi-natural experiments. Quantile regressions indicate that increased competition also raised returns to unobserved ability.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4434.

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Date of creation: Jun 2004
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Handle: RePEc:cpr:ceprdp:4434

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Keywords: product market competition; returns to skill; wage structure;

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