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Foreign Competition, Market Power and Wage Inequality: Theory and Evidence

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  • George J. Borjas
  • Valerie A. Ramey

Abstract

In this paper, we present theory and evidence on the link between wage inequality and foreign competition in concentrated industries. We develop a simple model in which the impact of foreign competition on the relative wages of an economy depends on the market structure of the industry penetrated. We show that the more concentrated is the industry, the greater is the impact of trade on general wage inequality. We use the theory to argue why import competition in an industry such as automobiles is much more deleterious to the wages of the less educated than import competition in an industry such as apparel. We then test our hypothesis using a panel data set on relative wages across SMSAs. We reinterpret our model as a model of local economies, and test it using both the cross-sectional and time- series variation across labor markets.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4556.

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Date of creation: Nov 1993
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Publication status: published as Quarterly Journal of Economics, 110 (November 1995): 1075-1110
Handle: RePEc:nbr:nberwo:4556

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  1. John M. Abowd & Richard B. Freeman, 1991. "Immigration, Trade and the Labor Market," NBER Books, National Bureau of Economic Research, Inc, number abow91-1.
  2. John M. Abowd & Thomas Lemieux, 1991. "The Effects of International Competition on Collective Bargaining Outcomes: A Comparison of the United States and Canada," NBER Chapters, in: Immigration, Trade and the Labor Market, pages 343-367 National Bureau of Economic Research, Inc.
  3. Robert J. LaLonde & Robert H. Topel, 1991. "Labor Market Adjustments to Increased Immigration," NBER Chapters, in: Immigration, Trade and the Labor Market, pages 167-199 National Bureau of Economic Research, Inc.
  4. repec:fth:coluec:452 is not listed on IDEAS
  5. Barry T. Hirsch & David A. MacPherson, 1993. "Union membership and coverage files from the Current Population Surveys: Note," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 46(3), pages 574-578, April.
  6. Levy, Frank & Murnane, Richard J, 1992. "U.S. Earnings Levels and Earnings Inequality: A Review of Recent Trends and Proposed Explanations," Journal of Economic Literature, American Economic Association, vol. 30(3), pages 1333-81, September.
  7. Alan B. Krueger & Lawrence H. Summers, 1986. "Reflections on the Inter-Industry Wage Structure," NBER Working Papers 1968, National Bureau of Economic Research, Inc.
  8. Richard B. Freeman, 1991. "How Much Has De-Unionisation Contributed to the Rise in Male Earnings Inequality?," NBER Working Papers 3826, National Bureau of Economic Research, Inc.
  9. Johnson, G.E. & Stafford, F.P., 1993. "International Competition and Real Wages," Working Papers 323, Research Seminar in International Economics, University of Michigan.
  10. 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.
  11. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-93, March.
  12. Joseph Altonji & David Card, 1989. "The Effects of Immigration on the Labor Market Outcome of Less-Skilled Natives," Working Papers 636, Princeton University, Department of Economics, Industrial Relations Section..
  13. George J. Borjas & Richard B. Freeman & Lawrence F. Katz, 1992. "On the Labor Market Effects of Immigration and Trade," NBER Chapters, in: Immigration and the Workforce: Economic Consequences for the United States and Source Areas, pages 213-244 National Bureau of Economic Research, Inc.
  14. Borjas, George J & Ramey, Valerie A, 1994. "Time-Series Evidence on the," American Economic Review, American Economic Association, vol. 84(2), pages 10-16, May.
  15. Jacob Mincer, 1991. "Human Capital, Technology, and the Wage Structure: What Do Time Series Show?," NBER Working Papers 3581, National Bureau of Economic Research, Inc.
  16. Belman, Dale L, 1988. "Concentration, Unionism, and Labor Earnings: A Sample Selection Approach," The Review of Economics and Statistics, MIT Press, vol. 70(3), pages 391-97, August.
  17. Joseph G. Altonji & David Card, 1989. "The Effects of Immigration on the Labor Market Outcomes of Natives," NBER Working Papers 3123, National Bureau of Economic Research, Inc.
  18. Grant, James H & Hamermesh, Daniel S, 1981. "Labor Market Competition among Youths, White Women and Others," The Review of Economics and Statistics, MIT Press, vol. 63(3), pages 354-60, August.
  19. Murphy, Kevin M & Welch, Finis, 1992. "The Structure of Wages," The Quarterly Journal of Economics, MIT Press, vol. 107(1), pages 285-326, February.
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