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International factor mobility, monopolistic competition, and wage inequality

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  • Pi, Jiancai
  • Zhou, Yu
  • Yin, Jun

Abstract

This paper introduces monopolistic competition into two-sector general equilibrium models to investigate the impacts of international factor mobility on the skilled–unskilled wage inequality. The basic model shows that the change of skilled–unskilled wage inequality is determined by the comparison of the capital–labor distributive shares between the two sectors. The extended model finds that when the output of the monopolistically competitive sector is non-tradable, the mechanism in the basic model fails to work. Thus, we should pay special attention to the role that the non-tradable feature of final-good production plays. In addition, the welfare effects of an FDI inflow are also examined by the basic and extended models.

Suggested Citation

  • Pi, Jiancai & Zhou, Yu & Yin, Jun, 2013. "International factor mobility, monopolistic competition, and wage inequality," Economic Modelling, Elsevier, vol. 33(C), pages 326-332.
    • Handle: RePEc:eee:ecmode:v:33:y:2013:i:c:p:326-332
    DOI: 10.1016/j.econmod.2013.04.013
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    More about this item

    Keywords

    FDI; Skilled immigration; Unskilled immigration; Wage inequality; Monopolistic competition;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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