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Trade, wages, and profits

  • Egger, Hartmut
  • Egger, Peter
  • Kreickemeier, Udo

This paper formulates a structural empirical model of heterogeneous firms whose workers exhibit fair-wage preferences, leading to a link between a firm's operating profits and wages of workers employed by this firm. We estimate the parameters of the model in a dataset of five European economies. The model predicts an exporter wage premium, which we find to be sizable in all countries, with nearly 6% on average. The estimates enable us to conduct counterfactual exercises. We find that openness to international trade has quantitatively important effects, leading to higher wage inequality and lower aggregate employment.

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Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 64 (2013)
Issue (Month): C ()
Pages: 332-350

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Handle: RePEc:eee:eecrev:v:64:y:2013:i:c:p:332-350
DOI: 10.1016/j.euroecorev.2013.09.008
Contact details of provider: Web page: http://www.elsevier.com/locate/eer

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