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

Josef Falkinger and Volker Grossmann ()

No 523, IZA Discussion Papers from Institute of Labor Economics (IZA)

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 organizational requirements for installing workplaces, we are capable 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.

Keywords: dual labor market; endogenous sunk costs; organizational labor; segregation; workplace (search for similar items in EconPapers)
JEL-codes: J26 C23 C25 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-lab and nep-mac
Date: 2002-07
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Published in: Journal of Institutional and Theoretical Economics, 2003, 159 (3), 523-544

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