Product Market Integration and Labour Markets: Aggregate Gains at the Cost of More Inequality?

Torben M. Andersen () and Allan Sørensen
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Torben M. Andersen: Aarhus University

No 2556, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Important labour market consequences of globalization may arise via product market integration which affects the room for wage negotiations and generates job creation and destruction through structural changes. We find in a Ricardian trade model that aggregate increases in wages and employment may conceal important differences across sectors/groups driven by a different balance between "protection" and "specialization" rents. In particular, wage inequality tends to be U-shaped, at first decreasing and then increasing in the process of product market integration. Consequently, there are gains in both the efficiency and the equity dimension until the level of integration reaches a certain level at which a trade-off arises.

Keywords: rent sharing; relative productivity; trade frictions; job turnover; inequality (search for similar items in EconPapers)
JEL-codes: F15 F16 J39 J50 J63 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2007-01
New Economics Papers: this item is included in nep-int
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Published - published as 'Product Market Integration, Rents and Wage Inequality' in: Review of International Economics, 2011, 19 (4), 595 - 608

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