Firm Dynamics and Residual Inequality in Open Economies

Gabriel Felbermayr, Giammario Impullitti and Julien Prat

No 2014-01, Discussion Papers from University of Nottingham, GEP

Abstract: Increasing wage inequality between similar workers plays an important role for overall inequality trends in industrialized societies. To analyse this pattern, we incorporate directed labour 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 labour 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 1996-2007, we find that neither trade nor key features of the Hartz labour 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 Labour Market Regulation. (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-bec, nep-dge, nep-int and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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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)
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