Workplaces in the Primary Economy and Wage Pressure in the Secondary Labor Market
32 Pages Posted: 9 Aug 2002
Date Written: June 2002
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 organizational requirements for installing workplaces, we are capable to explain downsizing of low-skilled jobs in the primary economy despite wage flexibility ex ante. This leads to more accentuated labor market segmentation, i.e. an increase in wage pressure in the secondary economy.
Keywords: Dual Labor Market, Endogenous Sunk Costs, Organizational Labor, Segregation, Workplace
JEL Classification: J26, C23, C25
Suggested Citation: Suggested Citation
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