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International competition, downsizing and wage inequality

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  • Walde, Klaus
  • Wei[ss], Pia

Abstract

A country with Cournot competition and free entry experiences an increase of its market size either due to economic growth or international integration of its goods markets. This implied increase in competition leads to shrinking mark-ups and forces firms to reduce overhead costs relative to output. This implies a reallocation at the aggregate level from administrative to productive activities. Relative factor rewards change and wage inequality increases. The factor which loses in relative terms can even lose in real terms. From a quantitative perspective, international competition is demonstrated to be the more plausible cause of rising wage inequality.

Suggested Citation

  • Walde, Klaus & Wei[ss], Pia, 2007. "International competition, downsizing and wage inequality," Journal of International Economics, Elsevier, vol. 73(2), pages 396-406, November.
    • Handle: RePEc:eee:inecon:v:73:y:2007:i:2:p:396-406
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    Cited by:

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    2. Lommerud, Kjell Erik & Meland, Frode & Straume, Odd Rune, 2011. "Mergers and capital flight in unionised oligopolies: Is there scope for a "national champion" policy?," International Review of Economics & Finance, Elsevier, vol. 20(2), pages 325-341, April.
    3. Egger, Hartmut & Etzel, Daniel, 2012. "The impact of trade on employment, welfare, and income distribution in unionized general oligopolistic equilibrium," European Economic Review, Elsevier, vol. 56(6), pages 1119-1135.
    4. Nolan, Brian & Richiardi, Matteo & Valenzuela, Luis, 2018. "The Drivers of Inequality in Rich Countries," MPRA Paper 89806, University Library of Munich, Germany.
    5. Anwar, Sajid & Rice, John, 2009. "Labour mobility and wage inequality in the presence of endogenous foreign investment," Economic Modelling, Elsevier, vol. 26(6), pages 1135-1139, November.
    6. Hartmut Egger & Udo Kreickemeier, 2017. "Firm Heterogeneity and the Labor Market Effects of Trade Liberalization," World Scientific Book Chapters, in: International Trade and Labor Markets Welfare, Inequality and Unemployment, chapter 10, pages 265-306, World Scientific Publishing Co. Pte. Ltd..
    7. Anwar, Sajid & Sun, Sizhong & Valadkhani, Abbas, 2013. "International outsourcing of skill intensive tasks and wage inequality," Economic Modelling, Elsevier, vol. 31(C), pages 590-597.
    8. Zhang, Jingjing, 2012. "Inflow of labour, producer services and wage inequality," Economics Letters, Elsevier, vol. 117(3), pages 600-603.
    9. Beladi, Hamid & Chao, Chi-Chur, 2010. "Downsizing, wage inequality and welfare in a developing economy," Research in Economics, Elsevier, vol. 64(4), pages 224-228, December.
    10. Zhang, Jingjing, 2015. "International factor mobility, elasticity of substitution in production and the skilled–unskilled wage gap," International Review of Economics & Finance, Elsevier, vol. 35(C), pages 122-129.

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