International Competition, Slim Firms and Wage Inequality

29 Pages Posted: 17 Sep 2004

See all articles by Klaus Wälde

Klaus Wälde

University of Mainz; CESifo (Center for Economic Studies and Ifo Institute); UCL at Louvain la Neuve

Pia Weiss

Nottingham University Business School

Date Written: August 2004

Abstract

A country with Cournot competition and free entry experiences an increase of its market size either due to economic growth or international integration of goods markets. The implied increase in competition leads to shrinking mark-ups and forces firms to reduce overhead costs relative to output. This implies a reallocation at the aggregate level from administrative to productive activities. Relative factor rewards change and wage inequality increases. The factor losing in relative terms can even lose in real terms. From a quantitative perspective, international competition is shown to be the more plausible cause of rising wage inequality.

Keywords: international trade, wage inequality, foreign competition, free entry and exit

JEL Classification: F12, J31

Suggested Citation

Wälde, Klaus and Weiss, Pia, International Competition, Slim Firms and Wage Inequality (August 2004). Available at SSRN: https://ssrn.com/abstract=590661

Klaus Wälde (Contact Author)

University of Mainz ( email )

Mainz School of Management and Economics
Mainz, 55128
Germany
+49 6131 3920143 (Phone)

HOME PAGE: http://www.waelde.com

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

UCL at Louvain la Neuve

Place Montesquieu, 3
Louvain-la-Neuve, 1348
Belgium

Pia Weiss

Nottingham University Business School ( email )

Jubilee Campus
Wollaton Road
Nottingham, NG8 1BB
United Kingdom

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