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Market Integration, Wage Concentration, and the Cost and Volume of Traded Machines

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  • T. Huw Edwards
  • Carlo Perroni

Abstract

We investigate the theoretical relationship between wage concentration and international market integration. Access to imported varieties lowers the cost of intermediate inputs (“machines”) used to carry out production tasks, causing workers with different comparative abilities to be sorted across a narrower range of tasks and raising the concentration of earnings. The accompanying shift in input use further expands the range of traded varieties, which further lowers the cost of machines. Effects on the volume of intermediate goods trade and the number of varieties produced are mutually reinforcing, resulting in a multiplier effect of market integration on wage concentration.

Suggested Citation

  • T. Huw Edwards & Carlo Perroni, 2014. "Market Integration, Wage Concentration, and the Cost and Volume of Traded Machines," CESifo Working Paper Series 4997, CESifo.
    • Handle: RePEc:ces:ceswps:_4997
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    References listed on IDEAS

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    Cited by:

    1. Edwards, T. Huw & Lücke, Matthias, 2021. "Decomposing the growth of the high-skilled wage premium in an advanced economy open to trade," The Quarterly Review of Economics and Finance, Elsevier, vol. 80(C), pages 766-784.

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    More about this item

    Keywords

    trade; skills; and tasks; wage inequality;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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