Working Papers in Economics,
University of Gothenburg, Department of Economics

Abstract: This essay investigates the interaction between demand uncertainty and non-competitive labor markets where firm owners have the option to shut down and relocate. Workers cannot find new jobs instantly and therefore accept wage reductions to avoid unemployment, if firm owners credibly threaten to shut down. The analysis shows that the expected wage rate is a mix of a competitive wage rate and a bargained wage rate and that this lowers the skill premium. Further, the option of firms to shut down and relocate increases the average size of firms. The analysis also shows that outsourcing or contracting out is more likely if demand is more uncertain, if market power is smaller, and if the markets for intermediate goods are more competitive. Fragmentation increases the skill premium because it leads to more homogenous firms, with respect to workers’ skills. With more homogenous firms, low-skill workers cannot compensate their inferior productivity in wage bargains with high-skill workers.

Keywords: Distribution; Wages; Outsourcing; Fragmentation; Bargaining

JEL-codes: J24; J31; J41; J52; L23; L24

57 pages, September 12, 2007

Full text files

4778 HTML file 

Download statistics

• University of Gothenburg, Department of Economics
• Ordering Working Papers
• Home page for this series

Questions (including download problems) about the papers in this series should be directed to Jessica Oscarsson ()
Report other problems with accessing this service to Sune Karlsson ().

RePEc:hhs:gunwpe:0265This page generated on 2024-11-14 18:33:26.