A Theory of Inter-Industry Wage Differentials (Classic Reprint)

November 30, 2018|
A Theory of Inter-Industry Wage Differentials (Classic Reprint) by Julio Rotemberg
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Excerpt from A Theory of Inter-Industry Wage Differentials

The role of profits in a model of this type is less clear because, for any profit maximizing firm, the marginal revenue generated by the last unit sold equals its marginal cost. This might be seen to imply that the most a worker can receive is a fraction of marginal cost which is independent of the profits of the firm. We present two reasons why some of the rents of the firm can be shared by workers nonetheless. The first is that ex-post, some workers have a very substantial effect on firm output (or profits). This would be the case, for instance, for individual computer software developpers working on a large project. The departure of any one of them, slows down the whole project substantially. When the fall in output is this large, the lost revenues may not be well approximated by the units lost times marginal revenue. For instance, in an oligopolistic industry, one would also have to take into account that marginal revenue rises as output contracts. The faster marginal revenue rises the more surplus the worker produces.

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Title:A Theory of Inter-Industry Wage Differentials (Classic Reprint)
Dimensions:52 pages, 9 X 6 X 0.11 in
Published:November 30, 2018
Publisher:FB&C Ltd
Appropriate for ages:All ages
ISBN - 13:9781330644294

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