Firm Heterogeneity and the Labour Market Effects of Trade Liberalisation

CESifo Working Paper No. 2000

University of Nottingham Research Paper No. 2006/26

42 Pages Posted: 20 Sep 2006

See all articles by Hartmut Egger

Hartmut Egger

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

Udo Kreickemeier

University of Tuebingen; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: May 2007

Abstract

This paper develops a model that incorporates workers' fair wage preferences into a general equilibrium framework with monopolistic competition between heterogeneous firms à la Melitz (2003). By assuming that the wage considered to be fair by workers depends on the productivity and thus the economic success of the firm they are working in, we can study the determinants of profits, involuntary unemployment and within-group wage inequality in a unified framework. We use this model to investigate the effects of globalisation. In a benchmark case with identical costs of entering domestic and foreign markets, there are gains from trade accompanied by distributional conflicts, which have so far not been accounted for in the literature: a simultaneous increase of average profits and involuntary unemployment as well as a surge in within-group wage inequality.

Keywords: heterogeneous firms, fair wages, unemployment, wage inequality, trade liberalisation

JEL Classification: F12, F15, F16

Suggested Citation

Egger, Hartmut and Kreickemeier, Udo, Firm Heterogeneity and the Labour Market Effects of Trade Liberalisation (May 2007). CESifo Working Paper No. 2000; University of Nottingham Research Paper No. 2006/26. Available at SSRN: https://ssrn.com/abstract=931114

Hartmut Egger (Contact Author)

University of Zurich - Department of Economics ( email )

Zürichbergstrasse 14
CH-8032 Zurich
Switzerland

HOME PAGE: http://www.wwi.unizh.ch/staff/egger/index.php

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

Udo Kreickemeier

University of Tuebingen ( email )

DE-72074 Tubingen
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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