International Product Market Integration, Rents and Wage Formation

26 Pages Posted: 16 Sep 2003

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 Sorensen

Aarhus University, Economics and Business

Date Written: July 2003

Abstract

International product market integration enhances both export possibilities through easier access to foreign markets, but also the import threat arising from foreign firms penetrating into the domestic market. These mechanisms affect wage formation and employment creation through many channels including product market rents and the possibility that jobs may be relocated across national labour markets. Possibilities and threats, however, will not in general be uniformly distributed across firms and therefore groups in the labour market. These issues are explored in a Ricardian trade model with imperfect competition, heterogeneity in the labour market, and decentralized wage-bargaining. The Paper analyses how product market integration affects wage formation, and identifies characteristics of winners and losers in the integration process.

Keywords: Trade frictions, wage formation, inequality

JEL Classification: F15, J50

Suggested Citation

Andersen, Torben M. and Sorensen, Allan, International Product Market Integration, Rents and Wage Formation (July 2003). Available at SSRN: https://ssrn.com/abstract=445720

Torben M. Andersen (Contact Author)

University of Aarhus - Department of Economics ( email )

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CESifo (Center for Economic Studies and Ifo Institute)

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Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Allan Sorensen

Aarhus University, Economics and Business ( email )

Fuglesangsalle 4
Aarhus V, 8210
Denmark

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