IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper

Firm Dynamics and Residual Inequality in Open Economies

  • Felbermayr, Gabriel
  • Impullitti, Giammario
  • Prat, Julien

Increasing wage inequality between similar workers plays an important role for overall inequality trends in industrialized societies. To analyze this pattern, we incorporate directed labor market search into a dynamic model of international trade with heterogeneous firms and homogeneous workers. Wage inequality across and within firms results from their different hiring needs along their life cycles and the convexity of their adjustment costs. The interaction between wage posting and firm growth explains some recent empirical regularities on firm and labor market dynamics. Fitting the model to capture key features obtained from German linked employer-employee data, we investigate how falling trade costs and institutional reforms interact in shaping labor market outcomes. Focusing on the period 1996-2007, we find that neither trade nor key features of the Hartz labor market reforms account for the sharp increase in residual inequality observed in the data. By contrast, inequality is highly responsive to the increase in product market competition triggered by domestic regulatory reform.

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://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=9855
Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9855.

as
in new window

Length:
Date of creation: Mar 2014
Date of revision:
Handle: RePEc:cpr:ceprdp:9855
Contact details of provider: Postal:
Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.

Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820

Order Information: Email:


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. Andrew B. Bernard & Stephen J. Redding & Peter K. Schott, 2007. "Comparative Advantage and Heterogeneous Firms," Review of Economic Studies, Oxford University Press, vol. 74(1), pages 31-66.
  2. Card, David & Heining, Jörg & Kline, Patrick, 2013. "Workplace Heterogeneity and the Rise of West German Wage Inequality," IZA Discussion Papers 7200, Institute for the Study of Labor (IZA).
  3. Egger, Hartmut & Egger, Peter & Kreickemeier, Udo, 2011. "Trade, Wages, and Profits," CEPR Discussion Papers 8727, C.E.P.R. Discussion Papers.
  4. Helpman, Elhanan & Itskhoki, Oleg, 2009. "Labor Market Rigidities, Trade, and Unemployment," CEPR Discussion Papers 7502, C.E.P.R. Discussion Papers.
  5. Woodcock, Simon D., 2008. "Wage differentials in the presence of unobserved worker, firm, and match heterogeneity," Labour Economics, Elsevier, vol. 15(4), pages 771-793, August.
  6. Elhanan Helpman & Oleg Itskhoki & Stephen Redding, 2008. "Inequality and Unemployment in a Global Economy," NBER Working Papers 14478, National Bureau of Economic Research, Inc.
  7. Yeaple, Stephen Ross, 2005. "A simple model of firm heterogeneity, international trade, and wages," Journal of International Economics, Elsevier, vol. 65(1), pages 1-20, January.
  8. Christian Holzner & Mario Larch, 2011. "Capacity Constraining Labor Market Frictions in a Global Economy," CESifo Working Paper Series 3597, CESifo Group Munich.
  9. Alan Manning, 2006. "A Generalised Model of Monopsony," Economic Journal, Royal Economic Society, vol. 116(508), pages 84-100, 01.
  10. Fuchs, Michaela & Weyh, Antje, 2008. "The determinants of job creation and destruction: plant-level evidence for Eastern and Western Germany," Dresden Discussion Paper Series in Economics 02/08, Dresden University of Technology, Faculty of Business and Economics, Department of Economics.
  11. Nezih Guner & James Tybout & A. Kerem Cosar, 2009. "Firm Dynamics, Job Turnover, and Wage Distributions in an Open Economy," 2009 Meeting Papers 811, Society for Economic Dynamics.
  12. Krebs, Tom & Scheffel, Martin, 2010. "A macroeconomic model for the evaluation of labor market reforms," ZEW Discussion Papers 10-050, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  13. Grossman, Gene M. & Helpman, Elhanan & Kircher, Philipp, 2013. "Matching and Sorting in a Global Economy," SIRE Discussion Papers 2013-69, Scottish Institute for Research in Economics (SIRE).
  14. Muendler, Marc-Andreas & Redding, Stephen & Akerman, Anders & Helpman, Elhanan & Itskhoki, Oleg, 2013. "Sources of Wage Inequality," Scholarly Articles 25586658, Harvard University Department of Economics.
  15. Guido Menzio & Shouyong Shi, 2009. "Block Recursive Equilibria for Stochastic Models of Search on the Job," Working Papers tecipa-347, University of Toronto, Department of Economics.
  16. Nicola Fuchs-Schuendeln & Dirk Krueger & Mathias Sommer, 2010. "Inequality Trends for Germany in the Last Two Decades: A Tale of Two Countries," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(1), pages 103-132, January.
  17. Robert E. Hall & Alan B. Krueger, 2012. "Evidence on the Incidence of Wage Posting, Wage Bargaining, and On-the-Job Search," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(4), pages 56-67, October.
  18. Tullio Jappelli & Luigi Pistaferri, 2009. "Does Consumption Inequality Track Income Inequality in Italy?," CSEF Working Papers 229, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  19. Steven J. Davis & R. Jason Faberman & John C. Haltiwanger, 2010. "The Establishment-Level Behavior of Vacancies and Hiring," NBER Working Papers 16265, National Bureau of Economic Research, Inc.
  20. Monika Merz & Eran Yashiv, 2007. "Labor and the Market Value of the Firm," American Economic Review, American Economic Association, vol. 97(4), pages 1419-1431, September.
  21. Baumgarten, Daniel, 2013. "Exporters and the rise in wage inequality: Evidence from German linked employer–employee data," Journal of International Economics, Elsevier, vol. 90(1), pages 201-217.
  22. Hertweck, Matthias Sebastian & Sigrist, Oliver, 2013. "The Aggregate Effects of the Hartz Reforms in Germany," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79942, Verein für Socialpolitik / German Economic Association.
  23. Daron Acemoglu & Robert Shimer, 1998. "Holdups and Efficiency with Search Frictions," Working papers 98-14, Massachusetts Institute of Technology (MIT), Department of Economics.
  24. Xing, Chunbing, 2010. "Residual Wage Inequality in Urban China, 1995-2007," IZA Discussion Papers 5003, Institute for the Study of Labor (IZA).
  25. Daron Acemoglu, 1999. "Patterns of Skill Premia," NBER Working Papers 7018, National Bureau of Economic Research, Inc.
  26. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2000. "Plants and Productivity in International Trade," Boston University - Institute for Economic Development 105, Boston University, Institute for Economic Development.
  27. Susanna Iranzo & Fabiano Schivardi & Elisa Tosetti, 2006. "Skill dispersion and firm productivity; an analysis with employer-employee matched data," Temi di discussione (Economic working papers) 577, Bank of Italy, Economic Research and International Relations Area.
  28. Blanchard, Olivier J & Giavazzi, Francesco, 2001. "Macroeconomic Effects of Regulation and Deregulation in Goods and Labour Markets," CEPR Discussion Papers 2713, C.E.P.R. Discussion Papers.
  29. Fahr, René & Sunde, Uwe, 2009. "Did the Hartz Reforms Speed-Up the Matching Process? A Macro-Evaluation Using Empirical Matching Functions," Munich Reprints in Economics 20482, University of Munich, Department of Economics.
  30. Paolo Epifani & Gino Gancia, 2004. "The Skill Bias of World Trade," Working Papers 184, Barcelona Graduate School of Economics.
  31. Impullitti, Giammario & Irarrazabal, Alfonso A. & Opromolla, Luca David, 2013. "A theory of entry into and exit from export markets," Journal of International Economics, Elsevier, vol. 90(1), pages 75-90.
  32. Krebs, Tom & Scheffel, Martin, 2012. "Macroeconomic Evaluation of Labor Market Reform in Germany," Working Papers 12-23, University of Mannheim, Department of Economics.
  33. Moritz Ritter, 2012. "Trade and Inequality in a Directed Search Model with Firm and Worker Heterogeneity," DETU Working Papers 1202, Department of Economics, Temple University.
  34. Alfonso A. Irarrazabal & Luca David Opromolla, 2008. "A Theory of Entry and Exit into Exports Markets," Working Papers w200820, Banco de Portugal, Economics and Research Department.
  35. Donald R. Davis & James Harrigan, 2007. "Good Jobs, Bad Jobs, and Trade Liberalization," NBER Working Papers 13139, National Bureau of Economic Research, Inc.
  36. Fitzenberger, Bernd & Osikominu, Aderonke & Völter, Robert, 2005. "Imputation rules to improve the education variable in the IAB employment subsample," FDZ Methodenreport 200503_en, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  37. Elhanan Helpman & Oleg Itskhoki & Marc-Andreas Muendler & Stephen Redding, 2012. "Trade and Inequality: From Theory to Estimation," CEP Discussion Papers dp1138, Centre for Economic Performance, LSE.
  38. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
  39. Sónia Torres & Pedro Portugal & John T. Addison & Paulo Guimarães, 2013. "The sources of wage variation: a three-way high-dimensional fixed effects regression model," Working Papers w201309, Banco de Portugal, Economics and Research Department.
  40. Pietro Garibaldi & Espen R. Moen, 2009. "Job to Job Movements in a Simple Search Model," Carlo Alberto Notebooks 137, Collegio Carlo Alberto.
  41. Hartmut Egger & Udo Kreickemeier, 2009. "Firm Heterogeneity And The Labor Market Effects Of Trade Liberalization," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(1), pages 187-216, 02.
  42. Jonathan Heathcote & Fabrizio Perri & Giovanni L. Violante, 2009. "Unequal We Stand: An Empirical Analysis of Economic Inequality in the United States, 1967-2006," NBER Working Papers 15483, National Bureau of Economic Research, Inc.
  43. Dustmann, Christian & Ludsteck, Johannes & Schönberg, Uta, 2007. "Revisiting the German Wage Structure," IZA Discussion Papers 2685, Institute for the Study of Labor (IZA).
  44. Richard Blundell & Ben Etheridge, 2010. "Consumption, Income and Earnings Inequality in Britain," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(1), pages 76-102, January.
  45. Holger Alda & Stefan Bender & Hermann Gartner, 2005. "European Data Watch: The linked employer-employee dataset created from the IAB establishment panel and the process-produced data of the IAB (LIAB)," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 125(2), pages 327-336.
  46. Pablo D. Fajgelbaum, 2013. "Labor Market Frictions, Firm Growth, and International Trade," NBER Working Papers 19492, National Bureau of Economic Research, Inc.
  47. Anita Wölfl & Isabelle Wanner & Tomasz Koźluk & Giuseppe Nicoletti, 2009. "Ten Years of Product Market Reform in OECD Countries: Insights from a Revised PMR Indicator," OECD Economics Department Working Papers 695, OECD Publishing.
Full references (including those not matched with items on IDEAS)

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

When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:9855. 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: ()

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.