Recent empirical research suggests that firm characteristics are crucial drivers of wage inequality. How do trade, labor and product market reforms affect wage dispersion across similar workers? How much of the surge in inequality produced by these reforms is attributable to changes in wage dispersion between and within firms?
In this Nottingham School of Economics working paper GEP internal fellow Giammario Impullitti and co-authors Gabriel Felbermayr and Julien Prat incorporate directed job search into a dynamic model of international trade. Wage inequality results from the interplay of convex adjustment costs with firms' different hiring needs along their life cycles. Fitting the model to German linked employer-employee data for 1996-2009, the authors explain about half of the inequality dynamics due to firm heterogeneity. The most important mechanism is tougher product market competition driven by domestic product market deregulation and, indirectly, international trade.
GEP 16/04, Firm Dynamics and Residual Inequality in Open Economies by Gabriel Felbermayr, Giammario Impullitti and Julien Prat
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Gabriel Felbermayr, Giammario Impullitti and Julien Prat
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