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Product Market Integration, Wages and Inequality

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  • Andersen, Torben M
  • Sorensen, Allan

Abstract

International integration strengthening intra-industrial trade may have important implications for employment, wages and inequality. The reason is that product market integration enhances export possibilities through easier access to foreign markets, but also import threats arising from foreign firms entering the domestic market. We explore the implications of these mechanisms in a general equilibrium version of a Ricardian trade model allowing for heterogeneity and imperfect competition in both product and labour markets. International integration is interpreted as a reduction in trade frictions. We find that wage dispersion in general tend to be U-shaped, at first falling and then increasing in product market integration. This finding has important implications not only for the ?globalization? debate, but also for empirical analysis.

Suggested Citation

  • Andersen, Torben M & Sorensen, Allan, 2005. "Product Market Integration, Wages and Inequality," CEPR Discussion Papers 4963, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:4963
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    Cited by:

    1. Biffl, Gudrun, 2006. "Towards a common migration policy : potential impact on the EU economy," Zeitschrift für ArbeitsmarktForschung - Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 39(1), pages 7-23.
    2. Biffl, Gudrun, 2006. "Towards a common migration policy : potential impact on the EU economy," Zeitschrift für ArbeitsmarktForschung - Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 39(1), pages 7-23.
    3. Yao-Tung Chen, 2009. "Market integration between developing countries and urban unemployment-the perspective of the real minimum wage," Applied Economics, Taylor & Francis Journals, vol. 41(19), pages 2431-2447.
    4. Torben M. Andersen & Allan Sørensen, 2008. "Product Market Integration and Heterogeneity—Rent Sharing and Pricing to Market," Review of International Economics, Wiley Blackwell, vol. 16(2), pages 268-284, May.
    5. Biffl, Gudrun, 2006. "Towards a common migration policy : potential impact on the EU economy," Zeitschrift für ArbeitsmarktForschung - Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 39(1), pages 7-23.

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    More about this item

    Keywords

    Trade frictions; Comparative advantages; Rent sharing; Inequality;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J39 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Other
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General

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