Abstract
Globalization in the form of product market integration affects labour
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.
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.
| Original language | English |
|---|---|
| Place of publication | Aarhus |
| Publisher | Institut for Økonomi, Aarhus Universitet |
| Number of pages | 25 |
| Publication status | Published - 2010 |
Keywords
- Trade frictions, relative productivity, rent sharing, job turnover and inequality