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Workplaces in the Primary Economy and Wage Pressure in the Secondary Labor Market

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Author Info
Falkinger, Josef (University of Zurich)
Grossmann, Volker () (University of Zurich and IZA Bonn)

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Abstract

This paper develops a two-sector general equilibrium model in which firms in the primary economy have to create workplaces prior to production and product market competition. For this, we introduce the endogenous sunk cost approach with two-stage decisions of firms from IO in the macro-labor literature. By hypothesizing that technological change has lowered marginal costs but has raised organizational requirements for installing workplaces, we are capable to explain downsizing of low-skilled jobs in the primary economy despite wage flexibility ex ante. This leads to more accentuated labor market segmentation, i.e. an increase in wage pressure in the secondary economy.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 523.

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Length: 32 pages
Date of creation: Jul 2002
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Handle: RePEc:iza:izadps:dp523

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Related research
Keywords: dual labor market; endogenous sunk costs; organizational labor; segregation; workplace;

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Find related papers by JEL classification:
J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data
C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models

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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.:
  1. Pierre-Richard Agénor & Joshua Aizenman, 1994. "Technological Change, Relative Wages, and Unemployment," IMF Working Papers 94/111, International Monetary Fund.
    Other versions:
  2. Kremer, Michael, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 551-75, August. [Downloadable!] (restricted)
  3. Galor, O. & Tsiddon, D., 1996. "Technological Progress, Mobility and Economic Growth," Papers 13-96, Tel Aviv.
    Other versions:
  4. Lindbeck, Assar & Snower, Dennis J, 2000. "Multitask Learning and the Reorganization of Work: From Tayloristic to Holistic Organization," Journal of Labor Economics, University of Chicago Press, vol. 18(3), pages 353-76, July. [Downloadable!] (restricted)
    Other versions:
  5. Fortin, Nicole M & Lemieux, Thomas, 1997. "Institutional Changes and Rising Wage Inequality: Is There a Linkage?," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 75-96, Spring. [Downloadable!] (restricted)
  6. Paul Krugman, 1994. "Past and prospective causes of high unemployment," Proceedings, Federal Reserve Bank of Kansas City, issue Jan, pages 49-98.
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  7. Francesco Caselli, 1999. "Technological Revolutions," American Economic Review, American Economic Association, vol. 89(1), pages 78-102, March. [Downloadable!] (restricted)
  8. Stephen Machin & John Van Reenen, 1998. "Technology And Changes In Skill Structure: Evidence From Seven Oecd Countries," The Quarterly Journal of Economics, MIT Press, vol. 113(4), pages 1215-1244, November. [Downloadable!] (restricted)
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  9. Berman, Eli & Bound, John & Griliches, Zvi, 1994. "Changes in the Demand for Skilled Labor within U.S. Manufacturing: Evidence from the Annual Survey of Manufactures," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 367-97, May. [Downloadable!] (restricted)
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  11. Saint-Paul, Gilles, 1996. "Are the unemployed unemployable?," European Economic Review, Elsevier, vol. 40(7), pages 1501-1519, August. [Downloadable!] (restricted)
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  12. Michael Kremer & Eric Maskin, 1996. "Wage Inequality and Segregation by Skill," NBER Working Papers 5718, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. Shouyong Shi, 2002. "Product Market and the Size-Wage Differential," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(1), pages 21-54, February. [Downloadable!] (restricted)
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  14. Murphy, Kevin M & Topel, Robert H, 1997. "Unemployment and Nonemployment," American Economic Review, American Economic Association, vol. 87(2), pages 295-300, May. [Downloadable!] (restricted)
  15. Bresnahan, Timothy F, 1999. "Computerisation and Wage Dispersion: An Analytical Reinterpretation," Economic Journal, Royal Economic Society, vol. 109(456), pages F390-415, June. [Downloadable!] (restricted)
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  16. Huw Lloyd-Ellis, 1999. "Endogenous Technological Change and Wage Inequality," American Economic Review, American Economic Association, vol. 89(1), pages 47-77, March. [Downloadable!] (restricted)
  17. Saint-Paul, Gilles, 1999. "On the Distribution of Income and Worker Assignment under Intra-Firm Spillovers, with an Application to Ideas And Networks," CEPR Discussion Papers 2290, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  18. Olivier Blanchard & Francesco Giavazzi, 2001. "Macroeconomic Effects of Regulation and Deregulation in Goods and Labor Markets," NBER Working Papers 8120, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  19. Oded Galor & Omer Moav, 1998. "Ability Biased Technological Transition, Wage Inequality, and Economic Growth," Working Papers 98-14, Brown University, Department of Economics.
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  20. John M. Abowd & Francis Kramarz & David N. Margolis, 1999. "High Wage Workers and High Wage Firms," Econometrica, Econometric Society, vol. 67(2), pages 251-334, March.
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  21. Acemoglu, D., 1997. "Why Do New Technologies Complement Skills? Directed Technical Change and Wage Inequality," Working papers 97-14, Massachusetts Institute of Technology (MIT), Department of Economics.
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  22. 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)
  23. Gautier, Pieter A, 2002. "Unemployment and Search Externalities in a Model with Heterogeneous Jobs and Workers," Economica, London School of Economics and Political Science, vol. 69(273), pages 21-40, February. [Downloadable!] (restricted)
  24. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June. [Downloadable!] (restricted)
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  25. Das, Satya P., 2001. "Trade and relative wages: The role of supervisory function by skilled workers," European Economic Review, Elsevier, vol. 45(1), pages 45-65, January. [Downloadable!] (restricted)
  26. Gregg, Paul & Manning, Alan, 1997. "Skill-biassed change, unemployment and wage inequality," European Economic Review, Elsevier, vol. 41(6), pages 1173-1200, June. [Downloadable!] (restricted)
  27. Hartmut Egger & Volker Grossmann, 2005. "The Double Role Of Skilled Labor, New Technologies And Wage Inequality," Metroeconomica, Blackwell Publishing, vol. 56(1), pages 37-57, 02. [Downloadable!] (restricted)
  28. Erik Brynjolfsson & Lorin M. Hitt, 2000. "Beyond Computation: Information Technology, Organizational Transformation and Business Performance," Journal of Economic Perspectives, American Economic Association, vol. 14(4), pages 23-48, Fall. [Downloadable!] (restricted)
  29. Peter Gottschalk & Timothy M. Smeeding, 1997. "Cross-National Comparisons of Earnings and Income Inequality," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 633-687, June. [Downloadable!] (restricted)
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. Volker Grossmann, 2005. "White-collar employment, inequality, and technological change," Journal of Economics, Springer, vol. 10(1), pages 119-142, December. [Downloadable!] (restricted)
  2. Egger, Hartmut & Grossmann, Volker, 2004. "Noncognitive Abilities and Within-Group Wage Inequality," IZA Discussion Papers 1024, Institute for the Study of Labor (IZA). [Downloadable!]
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This page was last updated on 2009-11-23.

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