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Workplaces in the primary economy and wage pressure in the secondary labor market


Falkinger, Josef; Grossmann, Volker (2003). Workplaces in the primary economy and wage pressure in the secondary labor market. Journal of Institutional and Theoretical Economics, 159(3):523-544.

Abstract

This paper develops a two-sector general-equilibrium model in which firms in the primary economy have to create workplaces prior to production and product market competition. For this, we introduce the endogenous sunk-cost approach with two-stage decisions of firms from IO in the macro labor literature. By hypothesizing that technological change has lowered marginal costs but has raised nonproduction requirements for providing workplaces, we are able to explain downsizing of low-skilled jobs in the primary economy despite wage flexibility exante. This leads to more accentuated labor-market segmentation, i.e., an increase in wage pressure in the secondary economy.

Abstract

This paper develops a two-sector general-equilibrium model in which firms in the primary economy have to create workplaces prior to production and product market competition. For this, we introduce the endogenous sunk-cost approach with two-stage decisions of firms from IO in the macro labor literature. By hypothesizing that technological change has lowered marginal costs but has raised nonproduction requirements for providing workplaces, we are able to explain downsizing of low-skilled jobs in the primary economy despite wage flexibility exante. This leads to more accentuated labor-market segmentation, i.e., an increase in wage pressure in the secondary economy.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Language:English
Date:2003
Deposited On:11 Feb 2008 12:21
Last Modified:05 Apr 2016 12:17
Publisher:Mohr Siebeck
ISSN:0932-4569
Publisher DOI:https://doi.org/10.1628/0932456032954729

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