Advanced Search
MyIDEAS: Login to save this paper or follow this series

Skills, labour costs and vertically differentiated industries: A general equilibrium analysis

Contents:

Author Info

  • Lutz, Stefan
  • Turrini, Alessandro

Abstract

The effect of labour costs on industry profits, employment and labour income is at the heart of the current European debate on industry competitiveness. High wages paid in European countries such as Germany are generally considered harmful for industry profitability. Though, high wages appear also to be associated with high labour skills and then with superior product quality. Similarly, a reduction in labour taxes is often invoked as a tool to improve industry profitability, but this argument hardly takes into account the demand effects of such a tax reform. In this paper we analyse the trade-off between labour costs and industry profits by means of a simple general equilibrium model where one industry is oligopolistic and vertically differentiated. The manufacturing of products of a higher quality requires the employment of a larger amount of skilled labour. Given an underlying skills distribution, the model determines profits, wages and aggregate income and welfare. Results show that high net wages due to a low skills endowment in the economy are typically associated with low profits. Labour taxation unambiguously raises gross wages, but has little effect on net wages. Depending on how the tax revenue is redistributed, higher taxation may either depress or boost industry profits. --

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://econstor.eu/bitstream/10419/39503/1/309765897.pdf
Download Restriction: no

Bibliographic Info

Paper provided by ZEI - Center for European Integration Studies, University of Bonn in its series ZEI Working Papers with number B 26-1999.

as in new window
Length:
Date of creation: 1999
Date of revision:
Handle: RePEc:zbw:zeiwps:b261999

Contact details of provider:
Postal: Walter-Flex-Straße 3, D - 53113 Bonn
Web page: http://www.zei.de/index_e.html
More information through EDIRC

Related research

Keywords: Vertical intra-industry trade; Quality differentiation; skills; productivity; labour cost;

Other versions of this item:

Find related papers by JEL classification:

References

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.:
as in new window
  1. Copeland, Brian R. & Kotwal, Ashok, 1996. "Product quality and the theory of comparative advantage," European Economic Review, Elsevier, Elsevier, vol. 40(9), pages 1745-1760, December.
  2. Gabszewicz, J. & Turrini, A., 2000. "Workers' skills, product quality and industry equilibrium," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 18(4), pages 575-593, May.
  3. GABSZEWICZ, Jean J. & THISSE, Jacques-François, . "Price competition, quality and income disparities," CORE Discussion Papers RP -370, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Kevin M.Shleifer Murphy & Andrei, 1991. "Quality and Trade," University of Chicago - George G. Stigler Center for Study of Economy and State, Chicago - Center for Study of Economy and State 66, Chicago - Center for Study of Economy and State.
  5. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 49(1), pages 3-13, January.
  6. Claude d’ASPREMONT & Rodolphe DOS SANTOS FERREIRA & Louis-André GÉRARD-VARET, 1989. "Unemployment in a Cournot Oligopoly Model with Ford Effects," Discussion Papers (REL - Recherches Economiques de Louvain) 1989012, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  7. Shaked, Avner & Sutton, John, 1983. "Natural Oligopolies," Econometrica, Econometric Society, Econometric Society, vol. 51(5), pages 1469-83, September.
  8. Lionel Fontagné & Michaël Freudenberg & Nicolas Peridy, 1997. "Trade Patterns Inside the Single Market," Working Papers 1997-07, CEPII research center.
  9. Motta, Massimo, 1993. "Endogenous Quality Choice: Price vs. Quantity Competition," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 41(2), pages 113-31, June.
  10. Courakis, Anthony S, 1991. "Labour Skills and Human Capital in the Explanation of Trade Patterns," Oxford Economic Papers, Oxford University Press, vol. 43(3), pages 443-62, July.
  11. Jaskold Gabszewicz, Jean & Vial, Jean-Philippe, 1972. "Oligopoly "A la cournot" in a general equilibrium analysis," Journal of Economic Theory, Elsevier, Elsevier, vol. 4(3), pages 381-400, June.
  12. H. Lutz, Stefan, 2000. "Trade Effects of Minimum Quality Standards with and without Deterred Entry," Journal of Economic Integration, Center for Economic Integration, Sejong University, Center for Economic Integration, Sejong University, vol. 15, pages 314-344.
  13. Lionel Fontagné & Michaël Freudenberg & Deniz Ünal, 1995. "Régionalisation et échanges de biens intermédiaires," Working Papers 1995-11, CEPII research center.
  14. repec:sae:niesru:v:111:y::i:1:p:48-61 is not listed on IDEAS
  15. Katsoulacos, Y., 1984. "Product innovation and employment," European Economic Review, Elsevier, Elsevier, vol. 26(1-2), pages 83-108.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:zbw:zeiwps:b261999. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.