Product Market Competition, Returns To Skill And Wage Inequality

Topics:
Organization
Tags:
Benefits,
Competition,
Human Resources,
Payroll Solutions
Source:
London School of Economics and Political Science

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Overview: This paper shows that increasing product market competition can have a direct impact on the employment relationship and on wage inequality. The author develops a simple model in which an increase in product market competition increases returns to skill through the effect of competition on the sensitivity of profits to cost reductions. He then show empirically that relative wages increase with competition using a large panel of United Kingdom workers with complete work histories. The author identifies the impact of competition on returns to skill in the panel, using two exogenous measures of competition provided by two quasi-natural experiments. Quantile regressions indicate that increased competition also raised returns to unobserved ability.

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Format: PDF | Size: 463KB | Date: May 2005 | Pages: 48

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