Product Market Integration and Labour Markets: Aggregate Gains at the Cost of More Inequality?
Torben M. Andersen
University of Aarhus - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)
Aarhus University, Economics and Business
IZA Discussion Paper No. 2556
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, wage inequality tends to be U-shaped, at first decreasing and then increasing in the process of product market integration. Consequently, there are gains in both the efficiency and the equity dimension until the level of integration reaches a certain level at which a trade-off arises.
Number of Pages in PDF File: 34
Keywords: trade frictions, relative productivity, rent sharing, job turnover, inequality
JEL Classification: F15, F16, J39, J50, J63working papers series
Date posted: January 23, 2007
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