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International competition, downsizing and wage inequality

  • Walde, Klaus
  • Wei[ss], Pia

A country with Cournot competition and free entry experiences an increase of its market size either due to economic growth or international integration of its goods markets. This implied increase in competition leads to shrinking mark-ups and forces firms to reduce overhead costs relative to output. This implies a reallocation at the aggregate level from administrative to productive activities. Relative factor rewards change and wage inequality increases. The factor which loses in relative terms can even lose in real terms. From a quantitative perspective, international competition is demonstrated to be the more plausible cause of rising wage inequality.

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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 73 (2007)
Issue (Month): 2 (November)
Pages: 396-406

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Handle: RePEc:eee:inecon:v:73:y:2007:i:2:p:396-406
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  1. Neary, J Peter, 2002. "Foreign Competition and Wage Inequality," Review of International Economics, Wiley Blackwell, vol. 10(4), pages 680-93, November.
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  9. Johnson, George & Stafford, Frank, 1999. "The labor market implications of international trade," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 34, pages 2215-2288 Elsevier.
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