Fairness, trade, and inequality

Hartmut Egger () and Udo Kreickemeier

Journal of International Economics, 2012, vol. 86, issue 2, 184-196

Abstract: We develop a model of international trade between two symmetric countries that features inter-group inequality between managers and workers, and also intra-group inequality within each of those two groups. Individuals are heterogeneous with respect to their managerial ability, and firms run by more able managers have a higher productivity level and make higher profits. There is rent sharing at the firm level due to fair wage preferences of workers, and hence firms with higher profits pay higher wages in equilibrium in order to elicit their workers' full effort. We show that in this framework international trade leads to a self-selection of the best firms into export status, with exporting firms having to pay a wage premium. Aggregate welfare increases, but there is also larger inequality along multiple dimensions: Involuntary unemployment and income inequality between managers and workers increase, and so does inequality within these two subgroups of individuals, as measured by the respective Gini coefficients.

Keywords: Heterogeneous firms; Income inequality; Fair wages; Unemployment (search for similar items in EconPapers)
JEL-codes: F12 F15 F16 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (127)

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Related works:
Working Paper: Fairness, Trade, and Inequality (2008)
Working Paper: Fairness, Trade, and Inequality (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:86:y:2012:i:2:p:184-196

DOI: 10.1016/j.jinteco.2011.10.002

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