Product Market Competition, Returns to Skill, and Wage Inequality

Maria Guadalupe ()

Journal of Labor Economics, 2007, vol. 25, pages 439-474

Abstract: This article examines the effect of product market competition on firms’ willingness to pay for workers of different skills. Using a panel of UK workers and two different quasi-natural experiments, I show that returns to skill within an industry increase with competition. I also investigate the mechanisms behind this relationship: in addition to the indirect effects that operate through union bargaining and skill-biased technical change, there is evidence for a direct effect of competition beyond those channels. I provide an explanation for this finding based on the relationship between competition and the sensitivity of profits to cost reductions.

Date: 2007
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Related works:
Working Paper: Product Market Competition Returns to Skill and Wage Inequality (2005)
Working Paper: Product Market Competition, Returns to Skill and Wage Inequality (2004)
Working Paper: Product Market Competition, Returns to Skill and Wage Inequality (2005)
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