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

35 Pages Posted: 10 Oct 2014

See all articles by T. Huw Edwards

T. Huw Edwards

Loughborough University - Department of Economics

Carlo Perroni

University of Warwick - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: September 30, 2014

Abstract

We investigate the theoretical relationship between wage concentration and international market integration. Access to imported varieties lowers the cost 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 the number of varieties produced are mutually reinforcing, resulting in a multiplier effect of market integration on wage concentration.

Keywords: trade, skills, and tasks, wage inequality

JEL Classification: F150, F160, D310

Suggested Citation

Edwards, Terence Huw and Perroni, Carlo, Market Integration, Wage Concentration, and the Cost and Volume of Trade Machines (September 30, 2014). CESifo Working Paper Series No. 4997. Available at SSRN: https://ssrn.com/abstract=2507760

Terence Huw Edwards

Loughborough University - Department of Economics ( email )

York House
Loughborough LE11 3TU
Great Britain
+44 1509 222717 (Phone)

Carlo Perroni (Contact Author)

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom
44 24 7652 8416 (Phone)
44 24 7652 3032 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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