Product Market Integration, Rents and Wage Inequality

14 Pages Posted: 7 Sep 2011

See all articles by Torben M. Andersen

Torben M. Andersen

University of Aarhus - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Allan Sørensen

Aarhus University

Date Written: September 2011

Abstract

Globalization in the form of product market integration affects labor markets and produces winners and losers. While there are aggregate gains, it is in general ambiguous how inequality is affected. We explore this issue in a Ricardian model and show that it depends on the balance between “protection” and “specialization” rents. In particular, wage inequality among similar workers (residual wage inequality) may be ‐shaped, at first decreasing and then increasing in the process of product market integration. Consequently, there may be gains in both the efficiency and the equity dimension until integration reaches a certain level at which a trade‐off arises.

Suggested Citation

Andersen, Torben M. and Sørensen, Allan, Product Market Integration, Rents and Wage Inequality (September 2011). Review of International Economics, Vol. 19, Issue 4, pp. 595-608, 2011, Available at SSRN: https://ssrn.com/abstract=1923502 or http://dx.doi.org/10.1111/j.1467-9396.2011.00968.x

Torben M. Andersen (Contact Author)

University of Aarhus - Department of Economics ( email )

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Allan Sørensen

Aarhus University ( email )

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