Product Market Integration, Wages and Inequality ∗ Preliminary and incomplete - comments welcome (original) (raw)

Product Market Integration and Labour Markets: Aggregate Gains at the Cost of More Inequality?

2007

Important labour market consequences of globalization may arise via product market integration which affects the room for wage negotiations and generates job creation and destruction through structural changes. We find in a Ricardian trade model that aggregate increases in wages and employment may conceal important differences across sectors/groups driven by a different balance between "protection" and "specialization" rents. In particular,

Product Market Integration, Rents and Wage Inequality

SSRN Electronic Journal, 2000

Globalization in the form of product market integration affects labour markets and produces winners and losers. While there are aggregate gains, it is in general ambiguous how inequality is affected. We explore this issue in a Ricardian model and show that it depends on the balance between "protection" and "specialization" rents. In particular, wage inequality among similar workers (residual wage inequality) may be U-shaped, at first decreasing and then increasing in the process of product market integration. Consequently, there may be gains in both the efficiency and the equity dimension until integration reaches a certain level at which a trade-off arises.

Product Market Integration and Wage Formation

Journal of Economic Integration, 2000

This paper analyses the basic labour market inter-dependencies among countries with intra-industrial trade and imper fectly competitive product and labour markets. The paper stresses two major channels through which increased integration may affect product markets and therefore in turn labour markets. First, market entry becomes easier and/or less costly implying that m o r e goods become traded goods. Second, market integration among economies already open to trade may reduce the explicit or implicit trade costs of selling in foreign markets. It is found that the two channels have different implications for wage formation.

Product Market Integration, Comparative Advantages and Labour Market Performance

Iza Discussion Papers, 2003

Product Market Integration, Comparative Advantages and Labour Market Performance * In a two-country model with trade driven by comparative advantages, it is considered how imperfectly competitive labour markets are affected by lower frictions in international goods trade. Easier goods trading is equivalent to increased mobility of employment across countries and thus a change in the trade-off between wages and employment faced by wage setters. While the effects of product market integration on the trade-off between wages and employment in general is ambiguous, it is shown that product market integration works like a general improvement in productivity via the specialization it allows through trade. Unambiguously, real wages and employment and welfare improve upon reductions in trade frictions, and therefore workers are better off irrespective of whether the market power of unions is enhanced or muted.

Intra-Industry Trade and Wage Income Inequality

typescript, University of …, 1999

Abstract: This paper introduces a firm-specific Chamberlinian mechanism of income distribution, based on quasi-homothetic preferences, non-homothetic production, and factor-biased internal scale economies in the production of each product variety. We ...

Trade and wage inequality: A specific factor model with intermediate goods

International Review of Economics & Finance, 2014

In this paper we try to address the current debate on the link between trade liberalization and wage inequality in developing countries within a general equilibrium framework. For this we set up two distinct models of trade. First, assuming a specific factor model with full employment we show that for a small developing economy wage inequality is related to labour productivity rather than freer trade per se. The model also suggests that while trade may increase wage inequality, this does not imply that poverty increases as wages of unskilled workers increase. However, in the second model with surplus labour specific to the non-traded agricultural good which is also an intermediate good, we show that the two wage rates move in opposite direction; but either of the two wage rates could increase depending on whether the export good is skilled or unskilled labour intensive. Interestingly, in the event of rising wage inequality, the model predicts that absolute poverty may rise.

Intraindustry Trade and the Wage Premium: Theory and Evidence

We explore theoretically and empirically the relationship between intraindustry trade and the wage premium. Our theoretical model features a Chamberlinian-type mechanism of income distribution based on quasi-homothetic consumer preferences, non-homothetic production, and factor-biased scale economies at the firm/variety level. The analysis focuses on a two-country, one-sector model of intraindustry trade with two factor inputs consisting of high-skilled and low-skilled labor. We find that a move from autarky to free trade (a) raises the output of the representative firm and its level of total factor productivity, and (b) reduces (raises) the relative wage of high-skilled workers under the hypothesis of output-skill substitutability (output-skill complementarity). Plant-level evidence from Mexico supports the empirical relevance of the proposed income-distribution mechanism. others for very useful comments and suggestions. We would also like to thank Leonardo Iacovone and Eric Verhoogen for helpful advice and clarifications regarding the INEGI datasets. 14 Solving (9) for the relative wage and substituting (5) yields

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

We present a simple model of trade in symmetrically differentiated goods where international market integration lowers the costs 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 on the number of varieties produced are mutually reinforcing in the model, resulting in a multiplier effect of market integration on wage concentration.

Trade barriers and wage inequality in a North–South model with technology-driven intra-industry trade

Journal of Development Economics, 2004

Reductions in trade barriers have been suggested as a possible cause of the growing wage inequality between skilled and unskilled labour in developed countries. Wage inequality, however, has also increased in some developing countries. Coupled with this wage inequality has been a rise in the relative employment of skilled workers. These facts are inconsistent with Stolper-Samuelson predictions concerning trade liberalization that arise in a standard two-country Heckscher-Ohlin-Samuelson (HOS) trade model. This paper presents a modified HOS model where Ricardian intraindustry trade in the skill-intensive high-tech sector is driven by international differences in adoption lags incorporating new technology. A reduction in trade barriers within the high-tech sector may lead to an increase in wage inequality in both developed and developing countries, or just one country, with a concurrent increase in the skill composition of the labour force.