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Workplaces in the Primary Economy and Wage Pressure in the Secondary Labor Market

  • Falkinger, Josef

    ()

    (University of Zurich)

  • Grossmann, Volker

    ()

    (University of Fribourg)

This paper develops a two-sector general equilibrium model in which firms in the primary economy have to create workplaces prior to production and product market competition. For this, we introduce the endogenous sunk cost approach with two-stage decisions of firms from IO in the macro-labor literature. By hypothesizing that technological change has lowered marginal costs but has raised organizational requirements for installing workplaces, we are capable to explain downsizing of low-skilled jobs in the primary economy despite wage flexibility ex ante. This leads to more accentuated labor market segmentation, i.e. an increase in wage pressure in the secondary economy.

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File URL: http://ftp.iza.org/dp523.pdf
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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 523.

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Length: 33 pages
Date of creation: Jul 2002
Date of revision:
Publication status: published in: Journal of Institutional and Theoretical Economics, 2003, 159 (3), 523-544
Handle: RePEc:iza:izadps:dp523
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  24. Daron Acemoglu, 1998. "Why Do New Technologies Complement Skills? Directed Technical Change And Wage Inequality," The Quarterly Journal of Economics, MIT Press, vol. 113(4), pages 1055-1089, November.
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