IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/4556.html

Foreign Competition, Market Power and Wage Inequality: Theory and Evidence

Author

Listed:
  • George J. Borjas
  • Valerie A. Ramey

Abstract

In this paper, we present theory and evidence on the link between wage inequality and foreign competition in concentrated industries. We develop a simple model in which the impact of foreign competition on the relative wages of an economy depends on the market structure of the industry penetrated. We show that the more concentrated is the industry, the greater is the impact of trade on general wage inequality. We use the theory to argue why import competition in an industry such as automobiles is much more deleterious to the wages of the less educated than import competition in an industry such as apparel. We then test our hypothesis using a panel data set on relative wages across SMSAs. We reinterpret our model as a model of local economies, and test it using both the cross-sectional and time- series variation across labor markets.

Suggested Citation

  • George J. Borjas & Valerie A. Ramey, 1993. "Foreign Competition, Market Power and Wage Inequality: Theory and Evidence," NBER Working Papers 4556, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:4556
    Note: LS
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w4556.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Grant, James H & Hamermesh, Daniel S, 1981. "Labor Market Competition among Youths, White Women and Others," The Review of Economics and Statistics, MIT Press, vol. 63(3), pages 354-360, August.
    2. Kevin M. Murphy & Finis Welch, 1992. "The Structure of Wages," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(1), pages 285-326.
    3. Borjas, George J & Ramey, Valerie A, 1994. "Time-Series Evidence on the," American Economic Review, American Economic Association, vol. 84(2), pages 10-16, May.
    4. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-293, March.
    5. McKinley L. Blackburn & David E. Bloom & Richard B. Freeman, 1989. "The Declining Economic Position of Less-Skilled American Males," NBER Working Papers 3186, National Bureau of Economic Research, Inc.
    6. Levy, Frank & Murnane, Richard J, 1992. "U.S. Earnings Levels and Earnings Inequality: A Review of Recent Trends and Proposed Explanations," Journal of Economic Literature, American Economic Association, vol. 30(3), pages 1333-1381, September.
    7. Robert J. LaLonde & Robert H. Topel, 1991. "Labor Market Adjustments to Increased Immigration," NBER Chapters, in: Immigration, Trade, and the Labor Market, pages 167-199, National Bureau of Economic Research, Inc.
    8. Belman, Dale L, 1988. "Concentration, Unionism, and Labor Earnings: A Sample Selection Approach," The Review of Economics and Statistics, MIT Press, vol. 70(3), pages 391-397, August.
    9. George J. Borjas & Richard B. Freeman & Lawrence F. Katz, 1992. "On the Labor Market Effects of Immigration and Trade," NBER Chapters, in: Immigration and the Work Force: Economic Consequences for the United States and Source Areas, pages 213-244, National Bureau of Economic Research, Inc.
    10. Barry T. Hirsch & David A. Macpherson, 1993. "Union Membership and Coverage Files from the Current Population Surveys: Note," ILR Review, Cornell University, ILR School, vol. 46(3), pages 574-578, April.
    11. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-442, June.
    12. Alan B. Krueger & Lawrence H. Summers, 1986. "Reflections on the Inter-Industry Wage Structure," NBER Working Papers 1968, National Bureau of Economic Research, Inc.
    13. John M. Abowd & Thomas Lemieux, 1991. "The Effects of International Competition on Collective Bargaining Outcomes: A Comparison of the United States and Canada," NBER Chapters, in: Immigration, Trade, and the Labor Market, pages 343-367, National Bureau of Economic Research, Inc.
    14. Joseph G. Altonji & David Card, 1991. "The Effects of Immigration on the Labor Market Outcomes of Less-skilled Natives," NBER Chapters, in: Immigration, Trade, and the Labor Market, pages 201-234, National Bureau of Economic Research, Inc.
    15. Abowd, John M. & Freeman, Richard B. (ed.), 1991. "Immigration, Trade, and the Labor Market," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226000954.
    16. Robert J. LaLonde & Robert H. Topel, 1991. "Labor Market Adjustments to Increased Immigration," NBER Chapters, in: Immigration, Trade, and the Labor Market, pages 167-199, National Bureau of Economic Research, Inc.
    17. Jacob Mincer, 1991. "Human Capital, Technology, and the Wage Structure: What Do Time Series Show?," NBER Working Papers 3581, National Bureau of Economic Research, Inc.
    18. Joseph G. Altonji & David Card, 1989. "The Effects of Immigration on the Labor Market Outcomes of Natives," NBER Working Papers 3123, National Bureau of Economic Research, Inc.
    19. Johnson, George E & Stafford, Frank P, 1993. "International Competition and Real Wages," American Economic Review, American Economic Association, vol. 83(2), pages 127-130, May.
    20. John M. Abowd & Richard B. Freeman, 1991. "Immigration, Trade, and the Labor Market," NBER Books, National Bureau of Economic Research, Inc, number abow91-1, January.
    21. Richard B. Freeman, 1991. "How Much Has De-Unionisation Contributed to the Rise in Male Earnings Inequality?," NBER Working Papers 3826, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Steven J. Davis, 1992. "Cross-Country Patterns of Change in Relative Wages," NBER Chapters, in: NBER Macroeconomics Annual 1992, Volume 7, pages 239-300, National Bureau of Economic Research, Inc.
    2. George J. Borjas, 1995. "The internationalization of the U.S. labor market and the wage structure," Economic Policy Review, Federal Reserve Bank of New York, issue Jan, pages 3-8.
    3. Jeff Borland, 2000. "Economic Explanations of Earnings Distribution Trends in the International Literature and Application to New Zealand," Treasury Working Paper Series 00/16, New Zealand Treasury.
    4. Orrenius, Pia M. & Zavodny, Madeline, 2007. "Does immigration affect wages? A look at occupation-level evidence," Labour Economics, Elsevier, vol. 14(5), pages 757-773, October.
    5. Lawrence F. Katz & Kevin M. Murphy, 1992. "Changes in Relative Wages, 1963–1987: Supply and Demand Factors," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(1), pages 35-78.
    6. Gordon H. Hanson & Matthew J. Slaughter, 1999. "The Rybczynski Theorem, Factor-Price Equalization, and Immigration: Evidence from U.S. States," NBER Working Papers 7074, National Bureau of Economic Research, Inc.
    7. Schmidt, Christoph & Fertig, Michael, 2001. "First- and Second-Generation Migrants in Germany - What Do We Know and What Do People Think," CEPR Discussion Papers 2803, C.E.P.R. Discussion Papers.
    8. Joshua Angrist & Adriana Kugler, 2001. "Protective or Counter-Productive? European Labor Market Institutions and the Effect of Immigrants on EU Natives," NBER Working Papers 8660, National Bureau of Economic Research, Inc.
    9. Younès, Yves, 1994. "Géo-économie politique de la transformation de l'économie américaine : 1975-1990," CEPREMAP Working Papers (Couverture Orange) 9409, CEPREMAP.
    10. Alan Barrett & Adele Bergin & David Duffy, 2006. "The Labour Market Characteristics and Labour Market Impacts of Immigrants in Ireland," The Economic and Social Review, Economic and Social Studies, vol. 37(1), pages 1-26.
    11. Monte, Ferdinando, 2011. "Skill bias, trade, and wage dispersion," Journal of International Economics, Elsevier, vol. 83(2), pages 202-218, March.
    12. George J. Borjas & Richard B. Freeman & Lawrence F. Katz, 1992. "On the Labor Market Effects of Immigration and Trade," NBER Chapters, in: Immigration and the Work Force: Economic Consequences for the United States and Source Areas, pages 213-244, National Bureau of Economic Research, Inc.
    13. Peter Kuhn (McMaster), "undated". "Labour Market Polarization: Canada in International Perspective," Canadian International Labour Network Working Papers 02, McMaster University.
    14. Olivier Cortes & Sébastien Jean, 1994. "Comment mesurer l'impact du commerce international sur l'emploi ? Une note méthodologique," Économie et Statistique, Programme National Persée, vol. 279(1), pages 3-11.
    15. Saiz, Albert, 2007. "Immigration and housing rents in American cities," Journal of Urban Economics, Elsevier, vol. 61(2), pages 345-371, March.
    16. Paserman, Daniele & Cohen-Goldner, Sarit, 2004. "Mass Migration to Israel and Natives' Transitions from Employment," CEPR Discussion Papers 4629, C.E.P.R. Discussion Papers.
    17. Liesbet Okkerse, 2008. "How To Measure Labour Market Effects Of Immigration: A Review," Journal of Economic Surveys, Wiley Blackwell, vol. 22(1), pages 1-30, February.
    18. Lutz Hendricks, "undated". "Migration and Human Capital," Working Papers 97/6, Arizona State University, Department of Economics.
    19. Klaus Waelde, 1996. "Lifetime learning, biased technological change and the evolution of wages in the U.S. 1960 - 1990," Labor and Demography 9601001, University Library of Munich, Germany.
    20. Bernt Bratsberg & James F. Ragan Jr., 2002. "Changes in the Union Wage Premium by Industry," ILR Review, Cornell University, ILR School, vol. 56(1), pages 65-83, October.

    More about this item

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:4556. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.