A General-Equilibrium Model with Vertically Differentiated Industries, Skilled Labour and Trade

Posted: 9 Aug 2005

See all articles by Stefan Lutz

Stefan Lutz

Lutz-Econ; HMKW University

Alessandro Turrini

European Commission; Centre for Economic Policy Research (CEPR)

Abstract

We present a simple general-equilibrium model where one industry is oligopolistic and vertically differentiated. The manufacturing of products of a higher quality requires the employment of a larger amount of skilled labour. Given an underlying skills distribution, the model determines profits, wages and aggregate income and welfare. Results show that increasing skills endowments typically benefits the whole economy due to product quality increases and quality-adjusted price decreases. When trade opening leads to exports of the quality good, aggregate welfare increases but unskilled-wage earners lose. The effects of labour taxation depend crucially on the existence of trade.

Keywords: vertical product differentiation, skills, labour productivity, intra-industry trade

JEL Classification: D4, D5, F1, F2, J2, L1

Suggested Citation

Lutz, Stefan and Lutz, Stefan and Turrini, Alessandro, A General-Equilibrium Model with Vertically Differentiated Industries, Skilled Labour and Trade. Economic Modelling, Forthcoming, Available at SSRN: https://ssrn.com/abstract=771427

Stefan Lutz (Contact Author)

Lutz-Econ ( email )

Ringstrasse 6
Gernsheim, Hessen 64579
Germany
+4915146672069 (Phone)

HOME PAGE: http://lutz-econ.de

HMKW University ( email )

Department of Economics
Solmsstrasse 6
Frankfurt, Hessen 60486
Germany
+4915146672069 (Phone)

HOME PAGE: http://https://www.hmkw.de/

Alessandro Turrini

European Commission ( email )

Office BU-10/113
B-1049 Brussels
Belgium
+32 2 299 5072 (Phone)
+32 2 299 3505 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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