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Vertical structure and wage inequality

Author

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  • Jiancai Pi
  • Shuning Li
  • Shumin Yu

Abstract

We analyze the role of vertical structure in wage inequality. By constructing general equilibrium models, we consider scenarios with unemployment, full employment, and separated unskilled labor markets. In an economy with unemployment, a reduction in the regulated upstream price will widen wage inequality if the substitution elasticity of factors in the variable cost is sufficiently small. In an economy with full employment, a decrease in the regulated upstream price will expand wage inequality. In an economy with separated unskilled labor markets, the results in the two aforementioned situations still hold. We further discuss how regulated upstream pricing affects social welfare.

Suggested Citation

  • Jiancai Pi & Shuning Li & Shumin Yu, 2026. "Vertical structure and wage inequality," International Journal of Economic Theory, The International Society for Economic Theory, vol. 22(2), pages 161-182, June.
    • Handle: RePEc:bla:ijethy:v:22:y:2026:i:2:p:161-182
    DOI: 10.1111/ijet.70013
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