Product Market Integration,Rents and Wage Inequality |
| |
Authors: | Torben M. Andersen Allan Sørensen |
| |
Affiliation: | School of Economics and Management, Aarhus University, Aarhus, Denmark and CEPR, EPRU and IZA |
| |
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 U ‐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. |
| |
Keywords: | |
|
|