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Firm Dynamics and Residual Inequality in Open Economies

Julien Prat (), Gabriel Felbermayr () and Giammario Impullitti

No 1121, 2016 Meeting Papers from Society for Economic Dynamics

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 job 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 firm growth explains 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 labor market outcomes. Focusing on the period 1996-2007, 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 but can explain the fall in unemployment. By contrast, inequality appears highly responsive to the increase in product market competition possibly triggered by domestic regulatory reform.

Date: 2016
New Economics Papers: this item is included in nep-bec and nep-dge
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Related works:
Journal Article: Firm Dynamics and Residual Inequality in Open Economies (2018) Downloads
Working Paper: Firm Dynamics and Residual Inequality in Open Economies (2018)
Working Paper: Firm Dynamics and Residual Inequality in Open Economies (2016) Downloads
Working Paper: Firm Dynamics and Residual Inequality in Open Economies (2014) Downloads
Working Paper: Firm Dynamics and Residual Inequality in Open Economies (2014) Downloads
Working Paper: Firm Dynamics and Residual Inequality in Open Economies (2014) Downloads
Working Paper: Firm Dynamics and Residual Inequality in Open Economies (2014) Downloads
Working Paper: Firm Dynamics and Residual Inequality in Open Economies (2014) Downloads
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