Abstract
This paper analyzes how capital concentration affects wage inequality through the channel of financial frictions. Higher capital concentration can be regarded as the Piketty effect. Under the framework of cost constrained financial frictions, we find that higher capital concentration will expand (resp. narrow down) wage inequality if the asset-liability ratio in the skilled sector is high (resp. low) enough relative to that in the unskilled sector.
References
Acemoglu, D. 2002. “Technical Change, Inequality and the Labour Market.” Journal of Economic Literature 40 (1): 7–72.10.1257/jel.40.1.7Search in Google Scholar
Alvaredo, F., and E. Saez. 2009. “Income and Wealth Concentration in Spain from a Historical and Fiscal Perspective.” Journal of the European Economic Association 7 (5): 1140–67.10.1162/JEEA.2009.7.5.1140Search in Google Scholar
Antràs, P., and R. J. Caballero. 2009. “Trade and Capital Flows: A Financial Frictions Perspective.” Journal of Political Economy 117 (4): 701–44.10.3386/w13241Search in Google Scholar
Anwar, S. 2013. “Outsourcing and the Skilled-unskilled Wage Gap.” Economics Letters 118 (2): 347–50.10.1016/j.econlet.2012.11.024Search in Google Scholar
Autor, D. H., L. F. Katz, and A. B. Krueger. 1998. “Computing Inequality: Have Computers Changed the Labor Market?” Quarterly Journal of Economics 113 (4): 1169–213.10.3386/w5956Search in Google Scholar
Barua, A., and M. Pant. 2014. “Trade and Wage Inequality: A Specific Factor Model with Intermediate Goods.” International Review of Economics & Finance 33: 172–85.10.1016/j.iref.2014.04.004Search in Google Scholar
Beladi, H., S. Chaudhuri, and S. Yabuuchi. 2008. “Can International Factor Mobility Reduce Wage Inequality in a Dual Economy?” Review of International Economics 16 (5): 893–903.10.1111/j.1467-9396.2008.00751.xSearch in Google Scholar
Beladi, H., S. Kar, and S. Marjit. 2013. “Emigration, Finite Changes and Wage Inequality.” Economics & Politics 25 (1): 61–71.10.1111/ecpo.12001Search in Google Scholar
Beladi, H., S. Marjit, and U. Broll. 2011. “Capital Mobility, Skill Formation and Polarization.” Economic Modelling 28 (4): 1902–06.10.1016/j.econmod.2011.03.019Search in Google Scholar
Bergin, P., L. Feng, and C.-Y. Lin. 2014. “Financial Frictions and Firm Dynamics.” NBER Working Paper No. 20099.10.3386/w20099Search in Google Scholar
Berman, E., J. Bound, and S. Machin. 1998. “Implications of Skill-biased Technological Change: International Evidence.” Quarterly Journal of Economics 113 (4): 1245–79.10.3386/w6166Search in Google Scholar
Bhandari, L. C. 1988. “Debt/Equity Ratio and Expected Common Stock Returns: Empirical Evidence.” Journal of Finance 43 (2): 507–28.10.1111/j.1540-6261.1988.tb03952.xSearch in Google Scholar
Boquist, J. A., and W. T. Moore. 1984. “Inter-industry Leverage Differences and the DeAngelo-Masulis Tax Shield Hypothesis.” Financial Management 13 (1): 5–9.10.2307/3665118Search in Google Scholar
Bowen, R. M., L. A. Daley, and C. C. Huber, Jr. 1982 “Evidence on the Existence and Determinants of Inter-industry Differences in Leverage.” Financial Management 11 (4): 10–20.10.2307/3665227Search in Google Scholar
Branch, W. A., N. Petrosky-Nadeau, and G. Rocheteau. 2016. “Financial Frictions, the Housing Market, and Unemployment.” Journal of Economic Theory 164: 101–35.10.1016/j.jet.2015.07.008Search in Google Scholar
Brunnermeier, M. K., T. M. Eisenbach, and Y. Sannikov. 2012. “Macroeconomics with Financial Frictions: A Survey.” NBER Working Paper 18102.10.3386/w18102Search in Google Scholar
Card, D., and J. E. DiNardo. 2002. “Skill-biased Technological Change and Rising Wage Inequality: Some Problems and Puzzles.” Journal of Labor Economics 20 (4): 733–83.10.3386/w8769Search in Google Scholar
Chaudhuri, S., and S. Yabuuchi. 2007. “Economic Liberalization and Wage Inequality in the Presence of Labor Market Imperfection.” International Review of Economics & Finance 16 (4): 592–603.10.1016/j.iref.2005.12.004Search in Google Scholar
Chaudhuri, S. 2008. “Wage Inequality in a Dual Economy and International Mobility of Factors: Do Factor Intensities Always Matter?” Economic Modelling 25 (6): 1155–64.10.1016/j.econmod.2008.02.007Search in Google Scholar
Chaudhuri, S., and D. Banerjee. 2010. “Foreign Capital Inflow, Skilled-unskilled Wage Inequality and Unemployment of Unskilled Labour in a Fair Wage Model.” Economic Modelling 27 (1): 477–86.10.1016/j.econmod.2009.10.015Search in Google Scholar
Chaudhuri, S., A. Ghosh, and D. Banerjee. 2018. “Can Public Subsidy on Education Necessarily Improve Wage Inequality?” International Review of Economics & Finance 54: 165–77.10.1016/j.iref.2017.08.005Search in Google Scholar
Chusseau, N., M. Dumont, and J. Hellier. 2008. “Explaining Rising Inequality: Skill-biased Technical Change and North-south Trade.” Journal of Economic Surveys 22 (3): 409–57.10.1111/j.1467-6419.2007.00537.xSearch in Google Scholar
Ertugrul, M., J. Lei, J. Qiu, and C. Wan. 2017. “Annual Report Readability, Tone Ambiguity, and the Cost of Borrowing.” Journal of Financial and Quantitative Analysis 52 (2): 811–36.10.1017/S0022109017000187Search in Google Scholar
Feenstra, R. C., and G. H. Hanson. 1996. “Foreign Investment, Outsourcing and Relative Wages.” In Political Economy of Trade Policies: Essays in Honor of Jagdish N. Bhagwati, edited by R. Feenstra, G. Grossman, and D. Irwin, 89–127. MA: MIT Press: Cambridge.10.3386/w5121Search in Google Scholar
Feenstra, R. C., and G. H. Hanson. 2003. “Global Production Sharing and Rising Wage Inequality: A Survey of Trade and Wages.” In Handbook of International Trade, edited by K. Choi, and J. Harrigan, 146–185. Basil Blackwell: London.10.1002/9780470756461.ch6Search in Google Scholar
Freeman, R. B., and L. F. Katz. 1994. “Rising Wage Inequality: the US versus Other Advanced Countries.” In Working under Different Rules, edited by R. Freeman, 29–62. Russel Sage Foundation: New York.Search in Google Scholar
Galbraith, J. K., B. Halbach, A. Malinowska, A. Shams, and W. Zhang. 2014. “UTIP Global Inequality Data Sets 1963–2008: Updates, Revisions and Quality Checks.” UTIP Working Paper 68.10.2139/ssrn.2464644Search in Google Scholar
Gera, S., W. Gu, and Z. Lin. 2001. “Technology and the Demand for Skills in Canada: an Industry-level Analysis.” Canadian Journal of Economics 34 (1): 132–48.10.1111/0008-4085.00066Search in Google Scholar
Guilera, J. 2010. “The Evolution of Top Income and Wealth Shares in Portugal since 1936.” Revista De Historia Economica-Journal of Iberian and Latin American Economic History 28 (1): 139–71.10.1017/S0212610909990073Search in Google Scholar
Güner, A. B. 2006. “Loan Sales and the Cost of Corporate Borrowing.” Review of Financial Studies 19 (2): 687–716.10.1093/rfs/hhj017Search in Google Scholar
Hansson, P. 2000. “Relative Demand for Skills in Swedish Manufacturing: Technology or Trade?” Review of International Economics 8 (3): 533–55.10.1111/1467-9396.00240Search in Google Scholar
Haskel, J., and M. J. Slaughter. 2002. “Does the Sector Bias of Skill-biased Technical Change Explain Changing Skill Premia?” European Economic Review 46 (10): 1757–83.10.1016/S0014-2921(01)00185-4Search in Google Scholar
Helpman, E. 2010. “Labor Market Frictions as a Source of Comparative Advantage, with Implications for Unemployment and Inequality.” NBER Working Paper No. 15764.10.3386/w15764Search in Google Scholar
Holmstrom, B., and J. Tirole. 1997. “Financial Intermediation, Loanable Funds, and the Real Sector.” Quarterly Journal of Economics 112 (3): 663–91.10.1162/003355397555316Search in Google Scholar
Hornstein, A. P. Krusell, and G. L. Violante. 2011. “Frictional Wage Dispersion in Search Models: A Quantitative Assessment.” American Economic Review 101 (7): 2873–98.10.3386/w13674Search in Google Scholar
Ju, J., and S.-J. Wei. 2011. “When Is Quality of Financial System a Source of Comparative Advantage?” Journal of International Economics 84 (2): 178–87.10.3386/w13984Search in Google Scholar
Juhn, C., K. M. Murphy, and B. Pierce. 1993. “Wage Inequality and the Rise in Returns to Skill.” Journal of Political Economy 101 (3): 410–42.10.1086/261881Search in Google Scholar
Kamstra, M. J., G. S. Roberts, and P. Shao. 2013. “Does the Secondary Loan Market Reduce Borrowing Costs?” Review of Finance 18 (3): 1139–81.10.1093/rof/rft011Search in Google Scholar
Katic, P., and A. Leigh. 2016. “Top Wealth Shares in Australia 1915–2012.” Review of Income and Wealth 62 (2): 209–22.10.1111/roiw.12177Search in Google Scholar
Katz, L. F., and D. H. Autor. 1999. “Changes in the Wage Structure and Earnings Inequality.” In Handbook of Labor Economics, edited by O. C. Ashenfelter, and D. Card, 1463–1555. Amsterdam: Elsevier.10.1016/S1573-4463(99)03007-2Search in Google Scholar
Kohn, D., F. Leibovici, and M. Szkup. 2016. “Financial Frictions and New Exporter Dynamics.” International Economic Review 57 (2): 453–86.10.1111/iere.12164Search in Google Scholar
Lin, C., Y. Ma, P. Malatesta, and Y. Xuan. 2011. “Ownership Structure and the Cost of Corporate Borrowing.” Journal of Financial Economics 100 (1): 1–23.10.1016/j.jfineco.2010.10.012Search in Google Scholar
Mandal, B., and S. Marjit. 2010. “Corruption and Wage Inequality?” International Review of Economics & Finance 19 (1): 166–72.10.1016/j.iref.2009.01.001Search in Google Scholar
Marjit, S., H. Beladi, and A. Chakrabarti. 2004. “Trade and Wage Inequality in Developing Countries.” Economic Inquiry 42 (2): 295–303.10.1093/ei/cbh061Search in Google Scholar
Mehta, A., and R. Hasan. 2012. “The Effects of Trade and Services Liberalization on Wage Inequality in India.” International Review of Economics and Finance 23: 75–90.10.1016/j.iref.2011.10.007Search in Google Scholar
Moll, B. 2014. “Productivity Losses from Financial Frictions: Can Self-financing Undo Capital Misallocation?” American Economic Review 104 (10): 3186–221.10.1257/aer.104.10.3186Search in Google Scholar
Myers, S. C., and N. S. Majluf. 1984. “Corporate Financing and Investment Decisions When Firms Have Information that Investors Do Not Have.” Journal of Financial Economics 13 (2): 187–221.10.1016/0304-405X(84)90023-0Search in Google Scholar
Oladi, R., and H. Beladi. 2008. “Non-traded Goods, Technical Progress and Wages.” Open Economies Review 19 (4): 507–15.10.1007/s11079-007-9057-1Search in Google Scholar
Oladi, R., J. Gilbert, and H. Beladi. 2011. “Foreign Direct Investment, Non-traded Goods and Real Wages.” Pacific Economic Review 16 (1): 36–41.10.1111/j.1468-0106.2010.00512.xSearch in Google Scholar
Pi, J., and X. Chen. 2016. “The Impacts of Capital Market Distortion on Wage Inequality, Urban Unemployment, and Welfare in Developing Countries.” International Review of Economics & Finance 42: 103–15.10.1016/j.iref.2015.10.045Search in Google Scholar
Pi, J., and P. Zhang. 2018. “Skill-biased Technological Change and Wage Inequality in Developing Countries.” International Review of Economics and Finance 56: 347–62.10.1016/j.iref.2017.11.004Search in Google Scholar
Pi, J., and Y. Zhou. 2012. “Public Infrastructure Provision and Skilled-unskilled Wage Inequality in Developing Countries.” Labour Economics 19 (6): 881–87.10.1016/j.labeco.2012.08.007Search in Google Scholar
Pi, J., and Y. Zhou. 2013. “Institutional Quality and Skilled-unskilled Wage Inequality.” Economic Modelling 35: 356–63.10.1016/j.econmod.2013.07.029Search in Google Scholar
Piketty, T. 1997. “The Dynamics of the Wealth Distribution and the Interest Rate with Credit Rationing.” Review of Economic Studies 64 (2): 173–89.10.2307/2971708Search in Google Scholar
Piketty, T. 2014. Capital in the twenty-first Century. Cambridge, MA: Harvard University Press.10.4159/9780674369542Search in Google Scholar
Piketty, T., and E. Saez. 2006. “The Evolution of Top Incomes: A Historical and International Perspective.” American Economic Review 96 (2): 200–05.10.3386/w11955Search in Google Scholar
Piketty, T., and G. Zucman. 2014. “Capital Is Back: Wealth-income Ratios in Rich Countries 1700–2010.” Quarterly Journal of Economics 129 (3): 1255–310.10.1093/qje/qju018Search in Google Scholar
Roberts, G., and L. E. Yuan. 2010. “Does Institutional Ownership Affect the Cost of Bank Borrowing?” Journal of Economics and Business 62 (6): 604–26.10.1016/j.jeconbus.2009.05.002Search in Google Scholar
Saez, E., and G. Zucman. 2016. “Wealth Inequality in the United States since 1913: Evidence from Capitalized Income Tax Data.” Quarterly Journal of Economics 131 (2): 519–78.10.3386/w20625Search in Google Scholar
Sannikov, Y. 2012. “Dynamic Security Design and Corporate Financing.” In Handbook of the Economics of Finance, Vol. 2A, edited by G. M. Constantinides, M. Harris, and R. M. Stulz, 71–122. Amsterdam: Elsevier.10.1016/B978-0-44-453594-8.00002-1Search in Google Scholar
Stein, J. C. 2003. “Agency, Information and Corporate Investment.” In Handbook of the Economics of Finance, Vol. 1A, edited by G. M. Constantinides, M. Harris, and R. M. Stulz, 111–165. Amsterdam: Elsevier.10.1016/S1574-0102(03)01006-9Search in Google Scholar
Stiglitz, J. E. 2018. “Where Modern Macroeconomics Went Wrong.” Oxford Review of Economic Policy 34 (1–2): 70–106.10.3386/w23795Search in Google Scholar
Tjaden, V., and F. Wellschmied. 2014. “Quantifying the Contribution of Search to Wage Inequality.” American Economic Journal: Macroeconomics 6 (1): 134–61.10.1257/mac.6.1.134Search in Google Scholar
Townsend, R. M. 1979. “Optimal Contracts and Competitive Markets with Costly State Verification.” Journal of Economic Theory 21 (2): 265–93.10.1016/0022-0531(79)90031-0Search in Google Scholar
Uren, L., and G. Virag. 2011. “Skill Requirements, Search Frictions, and Wage Inequality.” International Economic Review 52 (2): 379–406.10.1111/j.1468-2354.2011.00632.xSearch in Google Scholar
Verhoogen, E. A. 2008. “Trade, Quality Upgrading, and Wage Inequality in the Mexican Manufacturing Sector.” Quarterly Journal of Economics 123 (2): 489–530.10.1162/qjec.2008.123.2.489Search in Google Scholar
Vines, D., and S. Wills. 2018. “The Rebuilding Macroeconomic Theory Project: An Analytical Assessment.” Oxford Review of Economic Policy 34 (1–2): 1–42.10.1093/oxrep/grx062Search in Google Scholar
Waldenström, D. 2009. Lifting All Boats? the Evolution of Income and Wealth Inequality over the Path of Development. Lund: Lund University.Search in Google Scholar
Wood, A. 1995. “How Trade Hurt Unskilled Workers.” Journal of Economic Perspectives 9 (3): 57–80.10.1007/978-1-349-14577-5_7Search in Google Scholar
Wood, A. 1997. “Openness and Wage Inequality in Developing Countries: the Latin American Challenge to East Asian Conventional Wisdom.” World Bank Economic Review 11 (1): 33–57.10.1017/CBO9780511599118.012Search in Google Scholar
Wu, G. L. 2018. “Capital Misallocation in China: Financial Frictions or Policy Distortions?” Journal of Development Economics 130: 203–23.10.1016/j.jdeveco.2017.10.014Search in Google Scholar
Zhu, S. C., and D. Trefler. 2005. “Trade and Inequality in Developing Countries: A General Equilibrium Analysis.” Journal of International Economics 65 (1): 21–48.10.1016/j.jinteco.2003.11.005Search in Google Scholar
© 2019 Walter de Gruyter GmbH, Berlin/Boston