Kurokawa, Yoshinori (2008): Fixed Cost, Number of Firms, and Skill Premium: An Alternative Source for Rising Wage Inequality.
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The number of firms and the wage inequality increased in U.S. manufacturing industries after the late 1970s and early 1980s, when the so-called "Carter/Reagan deregulation" was implemented. This paper provides a possible theoretical explanation for this observed relationship between the number of firms and the wage inequality on the basis of fixed cost. By modifying a variety model, we show that lowering the fixed cost of entry increases the variety of inputs used by the final good. The skill premium then rises through variety-skill complementarity. Our model also shows that the size of a firm decreases and the real wage of low-skilled labor does not necessarily decline, which are compatible with U.S. observations.
|Item Type:||MPRA Paper|
|Original Title:||Fixed Cost, Number of Firms, and Skill Premium: An Alternative Source for Rising Wage Inequality|
|Keywords:||Fixed cost; The number of firms; Skill premium; Variety-skill complementarity|
|Subjects:||L - Industrial Organization > L5 - Regulation and Industrial Policy > L51 - Economics of Regulation
L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets
J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure; Wage Differentials
|Depositing User:||Yoshinori Kurokawa|
|Date Deposited:||12. Mar 2009 02:48|
|Last Modified:||12. Feb 2013 21:58|
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