Foreign Competition, Market Power and Wage Inequality: Theory and Evidence

46 Pages Posted: 30 Aug 2000

See all articles by George J. Borjas

George J. Borjas

Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)

Valerie A. Ramey

University of California at San Diego; National Bureau of Economic Research (NBER)

Date Written: December 1993

Abstract

In this paper, we present theory and evidence on the link between wage inequality and foreign competition in concentrated industries. We develop a simple model in which the impact of foreign competition on the relative wages of an economy depends on the market structure of the industry penetrated. We show that the more concentrated is the industry, the greater is the impact of trade on general wage inequality. We use the theory to argue why import competition in an industry such as automobiles is much more deleterious to the wages of the less educated than import competition in an industry such as apparel. We then test our hypothesis using a panel data set on relative wages across SMSAs. We reinterpret our model as a model of local economies, and test it using both the cross-sectional and time- series variation across labor markets.

Suggested Citation

Borjas, George J. and Ramey, Valerie A., Foreign Competition, Market Power and Wage Inequality: Theory and Evidence (December 1993). NBER Working Paper No. w4556. Available at SSRN: https://ssrn.com/abstract=226749

George J. Borjas (Contact Author)

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States
617-495-1393 (Phone)
617-495-9532 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Valerie A. Ramey

University of California at San Diego ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States
858-534-2388 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
50
Abstract Views
1,405
PlumX Metrics