Kurokawa, Yoshinori (2008): Fixed Cost, Number of Firms, and Skill Premium: An Alternative Source for Rising Wage Inequality.
Download (108Kb) | Preview
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|
Acemoglu, Daron. "Patterns of Skill Premia." Review of Economic Studies, 2003, 70(2), pp. 199-230.
Berman, Eli; Bound, John and Zvi Griliches. "Changes in the Demand for Skilled Labor within U.S. Manufacturing: Evidence from the Annual Survey of Manufactures." Quarterly Journal of Economics, 1994, 109(2), pp. 367-397.
Blanchard, Olivier and Michael Kremer. "Disorganization." Quarterly Journal of Economics, 1997, 112(4), pp. 1091-1126.
Boeri, Tito; Nicoletti, Giuseppe and Stefano Scarpetta. "Regulation and Labour Market Performance." CEPR Discussion Paper No. 2420, 2000.
Dinopoulos, Elias and Paul Segerstrom. "A Schumpeterian Model of Protection and Relative Wages." American Economic Review, 1999, 89(3), pp. 450-473.
Dixit, Avinash and Victor Norman. Theory of International Trade. Cambridge, England: Cambridge University Press, 1980.
Dixit, Avinash and Joseph E. Stiglitz. "Monopolistic Competition and Optimum Product Diversity." American Economic Review, 1977, 67(3), pp. 297-308.
Djankov, Simeon; La Porta, Rafael; Lopez-de-Silanes, Florencio and Andrei Shleifer. "The Regulation of Entry." Quarterly Journal of Economics, 2002, 117(1), pp. 1--37.
Ebell, Monique and Christian Haefke. "Product Market Deregulation and the U.S. Employment Miracle." IZA Discussion Paper No. 1946, 2006.
Ethier, Wilfred J. "National and International Returns to Scale in the Modern Theory of International Trade." American Economic Review, 1982, 72(3), pp. 389-405.
Feenstra, Robert C. and Gordon H. Hanson. "Foreign Investment, Outsourcing and Relative Wages," in Robert C. Feenstra, Gene M. Grossman and Douglas A. Irwin, eds., The Political Economy of Trade Policy: Papers in Honor of Jagdish Bhagwati. Cambridge, MA: MIT Press, 1996, pp. 89-127.
Katz, Lawrence F. and David H. Autor. "Change in the Wage Structure and Earnings Inequality," in Orley Ashtenfelter and David Card, eds., Handbook of Labor Economics, Vol. 3A. Amsterdam: North-Holland, 1999, pp. 1463-1555.
Kremer, Michael. "The O-Ring Theory of Economic Development." Quarterly Journal of Economics, 1993, 108(3), pp. 551-575.
Krugman, Paul R. "Increasing Returns, Monopolistic Competition, and International Trade." Journal of International Economics, 1979, 9(4), pp. 469-479.
Krusell, Per; Ohanian, Lee E.; Rios-Rull, Jose-Victor and Giovanni L. Violante. "Capital-Skill Comlementarity and Inequality: A Macroeconomic Analysis." Econometrica, 2000, 68(5), pp. 129-154.
Mankiw, N. Gregory and Michael D. Whinston. "Free Entry and Social Inefficiency." Rand Journal of Economics, 1986, 17(1), pp. 48-58.
Pissarides, Christopher A. "Company Start-Up Costs and Employment." CEP Discussion Paper No. 520, 2001.
Zhu, Susan C. and Daniel Trefler. "Trade and Inequality in Developing Countries: A General Equilibrium Analysis." Journal of International Economics, 2005, 65(1), pp. 21-48.