Product Market Competition, Returns to Skill and Wage Inequality

Arbeitspapier

This paper shows that increasing product market competition can have a direct impact on the employment relationship and on wage inequality. I develop 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. I then show empirically that relative wages increase with competition using a large panel of United Kingdom workers with complete work histories. I identify 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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IZA Discussion Papers ; No. 1556

Classification and Topics

• Classification: Wirtschaft ; Firm Behavior: Theory ; Firm Organization and Market Structure ; Compensation Packages; Payment Methods ; Wage Level and Structure; Wage Differentials
• Subject: wage structure ; returns to skill ; product market competition

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Guadalupe, Maria
• Event: Veröffentlichung
• (who): Institute for the Study of Labor (IZA)
• (where): Bonn
• (when): 2005

Further information

• Handle: http://hdl.handle.net/10419/21332
• Last update: 10.03.2025, 11:42 AM CET