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Workplaces in the Primary Economy and Wage Pressure in the Secondary Labor Market

Josef Falkinger and Volker Grossmann ()

Journal of Institutional and Theoretical Economics (JITE), 2003, vol. 159, issue 3, 523-544

Abstract: This paper develops a two-sector general-equilibrium model in which firms in the primary economy have to create workplaces prior to production and product-market competition. For this, we introduce the endogenous sunk-cost approach with two-stage decisions of firms from IO in the macro labor literature. By hypothesizing that technological change has lowered marginal costs but has raised nonproduction requirements for providing workplaces, we are able to explain downsizing of low-skilled jobs in the primary economy despite wage flexibility ex ante. This leads to more accentuated labor-market segmentation, i.e., an increase in wage pressure in the secondary economy.

JEL-codes: D20 J31 (search for similar items in EconPapers)
Date: 2003
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