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Trade, wages, and profits

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  • Egger, Hartmut
  • Egger, Peter
  • Kreickemeier, Udo

Abstract

This paper formulates a structural empirical model of heterogeneous firms whose workers exhibit fair-wage preferences. In the underlying theoretical framework, such preferences lead to a link between a firm's operating profits on the one hand and wages of workers employed by this firm on the other hand. The latter establishes an exporter wage premium, since exporters have higher profits, given their productivity, than non-exporting firms. We estimate the parameters of the model in a data-set of five European economies and find that, when evaluated at these parameter values, the model has a high level of explanatory power. The estimates also enable us to quantify the exporter wage premium and the consequences of trade for the main variables of interest. According to our results, openness to international trade contributes to greater inequality across firms in terms of both operating profits and average wages. We also find evidence for gains from trade for all five countries, which go along with negative, but quantitatively moderate, aggregate employment effects.

Suggested Citation

  • Egger, Hartmut & Egger, Peter & Kreickemeier, Udo, 2011. "Trade, wages, and profits," University of Tuebingen Working Papers in Economics and Finance 23, University of Tuebingen, Faculty of Economics and Social Sciences.
  • Handle: RePEc:zbw:tuewef:23
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    Cited by:

    1. repec:wsi:wschap:9789813224919_0012 is not listed on IDEAS
    2. Matthias Strifler & Thomas Beissinger, 2016. "Fairness Considerations in Labor Union Wage Setting – A Theoretical Analysis," Scottish Journal of Political Economy, Scottish Economic Society, vol. 63(3), pages 303-330, July.
    3. Klein, Michael W. & Moser, Christoph & Urban, Dieter M., 2013. "Exporting, skills and wage inequality," Labour Economics, Elsevier, vol. 25(C), pages 76-85.
    4. von Ehrlich, Maximilian & Seidel, Tobias, 2015. "Regional implications of financial market development: Industry location and income inequality," European Economic Review, Elsevier, vol. 73(C), pages 85-102.
    5. Hartmut Egger & Udo Kreickemeier & Jens Wrona, 2017. "Offshoring Domestic Jobs," World Scientific Book Chapters,in: International Trade and Labor Markets Welfare, Inequality and Unemployment, chapter 2, pages 27-70 World Scientific Publishing Co. Pte. Ltd..
    6. Maximilian von Ehrlich & Tobias Seidel, 2016. "Financial Development and Inequality in the Global Economy," CESifo Working Paper Series 5776, CESifo Group Munich.
    7. Gabriel Felbermayr & Giammario Impullitti & Julien Prat, 2014. "Firm Dynamics and Residual Inequality in Open Economies," CESifo Working Paper Series 4666, CESifo Group Munich.
    8. repec:bla:reviec:v:25:y:2017:i:1:p:108-131 is not listed on IDEAS
    9. Hartmut Egger & Udo Kreickemeier, 2017. "Fairness, Trade, and Inequality," World Scientific Book Chapters,in: International Trade and Labor Markets Welfare, Inequality and Unemployment, chapter 12, pages 339-380 World Scientific Publishing Co. Pte. Ltd..
    10. repec:oup:restud:v:84:y:2017:i:1:p:357-405. is not listed on IDEAS
    11. Juan Carluccio & Denis Fougère & Erwan Gautier, 2015. "Trade, Wages and Collective Bargaining: Evidence from France," Economic Journal, Royal Economic Society, vol. 0(584), pages 803-837, May.
    12. Maximilian von Ehrlich, Tobias Seidel, 2016. "Financial Development and Inequality in the Global Economy," Diskussionsschriften credresearchpaper08, Universitaet Bern, Departement Volkswirtschaft - CRED.
    13. repec:eee:eecrev:v:98:y:2017:i:c:p:373-391 is not listed on IDEAS
    14. Paulo Bastos & Joana Silva & Rafael Proença, 2016. "Exports and Job Training," Review of International Economics, Wiley Blackwell, vol. 24(4), pages 737-756, September.
    15. repec:kap:iecepo:v:14:y:2017:i:2:d:10.1007_s10368-016-0371-1 is not listed on IDEAS
    16. Afonso, Oscar & Neves, Pedro Cunha & Thompson, Maria, 2016. "The skill premium and economic growth with costly investment, complementarities and international trade of intermediate goods," Japan and the World Economy, Elsevier, vol. 37, pages 73-86.
    17. repec:bla:worlde:v:40:y:2017:i:7:p:1473-1493 is not listed on IDEAS
    18. Hauptmann, Andreas & Schmerer, Hans-Jörg, 2013. "Do exporters pay fair-wage premiums?," Economics Letters, Elsevier, vol. 121(2), pages 179-182.
    19. Elhanan Helpman & Oleg Itskhoki & Marc-Andreas Muendler & Stephen J. Redding, 2017. "Trade and Inequality: From Theory to Estimation," Review of Economic Studies, Oxford University Press, vol. 84(1), pages 357-405.
    20. Daniel Baumgarten & Gabriel Felbermayr & Sybille Lehwald, 2016. "Dissecting between-plant and within-plant wage dispersion - Evidence from Germany," ifo Working Paper Series 216, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    21. Gregor Hesse, 2015. "Inequality in a global economy: evidence from Germany," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 151(4), pages 803-820, November.
    22. Gabriel Felbermayr & Andreas Hauptmann & Hans-Jörg Schmerer, 2014. "International Trade and Collective Bargaining Outcomes: Evidence from German Employer–Employee Data," Scandinavian Journal of Economics, Wiley Blackwell, vol. 116(3), pages 820-837, July.
    23. Marco Pinto, 2016. "Redistribution of Trade Gains in the Presence of Firm and Worker Heterogeneity," The World Economy, Wiley Blackwell, vol. 39(9), pages 1360-1383, September.
    24. Nathalie Scholl, 2015. "The Impact of Trade on Wage Inequality in Developing Countries: Technology vs. Comparative Advantage," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 190, Courant Research Centre PEG.
    25. Peter H. Egger & Katharina Erhardt & Andrea Lassmann, 2015. "Productivity and R&D as Drivers of Exports and Domestic Sales: Semi-parametric Evidence from French Firm-level Data," The World Economy, Wiley Blackwell, vol. 38(7), pages 1115-1129, July.

    More about this item

    Keywords

    structural models; heterogeneous firms; fair wages; labour market imperfections; exporter wage premium;

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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