Firm Dynamics and Residual Inequality in Open Economies

Gabriel Felbermayr, Giammario Impullitti and Julien Prat

No 2014/05, Discussion Papers from University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM)

Abstract: Increasing wage inequality between similar workers plays an important role for overall inequality trends in industrialized societies. To analyze this pattern, we incorporate directed labor market search into a dynamic model of international trade with heterogeneous firms and homogeneous workers. Wage inequality across and within firms results from their different hiring needs along their life cycles and the convexity of their adjustment costs. The interaction between wage posting and firms' growth process allows us to explain some recent empirical regularities on firm and labor market dynamics. Fitting the model to capture key features obtained from German linked employer-employee data, we investigate how falling trade costs and institutional reforms interact in shaping firm dynamics and aggregate labor market outcomes. Focusing on the period 1996 to 2007, we find that neither trade nor key features of the Hartz labor market reforms account for the sharp increase in residual inequality observed in the data. By contrast, inequality is highly responsive to the increase in product market competition triggered by domestic deregulation reforms.

Keywords: Wage Inequality; International Trade; Directed Search; Firm Dynamics; Product and Labor Market Regulation (search for similar items in EconPapers)
Date: 2014-05
New Economics Papers: this item is included in nep-bec, nep-dge and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
https://www.nottingham.ac.uk/cfcm/documents/papers/cfcm-2014-05.pdf (application/pdf)

Related works:
Journal Article: Firm Dynamics and Residual Inequality in Open Economies (2018)
Working Paper: Firm Dynamics and Residual Inequality in Open Economies (2018)
Working Paper: Firm Dynamics and Residual Inequality in Open Economies (2016)
Working Paper: Firm Dynamics and Residual Inequality in Open Economies (2016)
Working Paper: Firm Dynamics and Residual Inequality in Open Economies (2014)
Working Paper: Firm Dynamics and Residual Inequality in Open Economies (2014)
Working Paper: Firm Dynamics and Residual Inequality in Open Economies (2014)
Working Paper: Firm Dynamics and Residual Inequality in Open Economies (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:not:notcfc:14/05

Access Statistics for this paper

More papers in Discussion Papers from University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM) School of Economics University of Nottingham University Park Nottingham NG7 2RD. Contact information at EDIRC.
Bibliographic data for series maintained by Hilary Hughes ().