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Workers’ skills, product quality and industry equilibrium

Author

Listed:
  • GABSZEWICZ, Jean

    (Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium)

  • TURRINI, Alessandro

    (Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium)

Abstract
In this paper we develop a model of a vertically differentiated industry where the production of higher quality goods needs a higher fraction of specialized labour. In the first stage, firms choose the quality of their products, in the second, both good prices and skilled workers’ wages are determined. We show that in duopoly, though supplying different variants of the product, firms tend to cluster either at the bottom or at the top of the quality ladder, depending on skilled labour availability. This switch in equilibrium qualities creates a discontinuous behaviour for the wage rate of skilled workers. When the supply of skilled labour is made endogenous, two equilibria are simultaneously possible: one with low-skill, low quality, the other with high-skill, high-quality.

Suggested Citation

  • GABSZEWICZ, Jean & TURRINI, Alessandro, 1997. "Workers’ skills, product quality and industry equilibrium," LIDAM Discussion Papers CORE 1997055, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:1997055
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    References listed on IDEAS

    as
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    Cited by:

    1. Amal Hili & Rim Lahmandi-Ayed & Hejer Lasram, 2016. "Differentiation, labor market and globalization," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 25(6), pages 809-833, September.
    2. John S. Heywood & John G. Sessions & Nikolaos Theodoropoulos, 2023. "Quality competition and worker training," Bulletin of Economic Research, Wiley Blackwell, vol. 75(4), pages 935-943, October.
    3. Lionel Fontagné & Michael Freudenberg & Guillaume Gaulier, 2005. "Disentangling Horizontal and Vertical Intra-Industry Trade," Working Papers 2005-10, CEPII research center.
    4. Emanuele Bacchiega & Antonio Minniti, 2015. "Training and Product Quality in Unionized Oligopolies," Economica, London School of Economics and Political Science, vol. 82, pages 1261-1301, December.
    5. Bhattacharyya, Ranajoy & Saha, Bibhas, 2011. "Wage bargaining and quality competition," MPRA Paper 30968, University Library of Munich, Germany.
    6. Jean-Luc Demeulemeester & Olivier Debande, 2008. "Quality and Variety Competition in Higher Education," Working Papers 08-10, Association Française de Cliométrie (AFC).
    7. Lionel Fontagné & Michael Freudenberg & Guillaume Gaulier, 2006. "A Systematic Decomposition of World Trade into Horizontal and Vertical IIT," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 142(3), pages 459-475, October.
    8. Christos Bilanakos & John S. Heywood & John Sessions & Nikolaos Theodoropoulos, 2014. "Worker Training and Competing on Product Quality," University of Cyprus Working Papers in Economics 08-2014, University of Cyprus Department of Economics.
    9. Hend Ghazzai & Wided Hemissi & Rim Lahmandi-Ayed & Sana Mami Kefi, 2021. "Note on Democracy and Competition: The Role of Ownership Structure in a General Equilibrium Model with Vertical Preferences," Revue d'économie politique, Dalloz, vol. 131(2), pages 249-261.
    10. E. Bacchiega & O. Bonroy, 2012. "Vertical relations and number of channels in quality-differentiated markets," Working Papers wp823, Dipartimento Scienze Economiche, Universita' di Bologna.
    11. Jean Gabszewicz & Alessandro Turrini, 1999. "Workers' Skills and Product Selection," Revue Économique, Programme National Persée, vol. 50(3), pages 383-391.
    12. Lutz, Stefan & Turrini, Alessandro, 1999. "Skills, labour costs and vertically differentiated industries: A general equilibrium analysis," ZEI Working Papers B 26-1999, University of Bonn, ZEI - Center for European Integration Studies.
    13. Techawiboonwong, Atthawit & Yenradee, Pisal & Das, Sanchoy K., 2006. "A master scheduling model with skilled and unskilled temporary workers," International Journal of Production Economics, Elsevier, vol. 103(2), pages 798-809, October.
    14. Hend Ghazzai & Wided Hemissi & Rim Lahmandi-Ayed & Sana Kefi, 2020. "A Note on Democracy and Competition: The Role of Ownership Structure in a General Equilibrium Model with Vertical Preferences," Working Papers hal-02480175, HAL.
    15. Lutz, Stefan & Turrini, Alessandro, 2006. "A general equilibrium model with vertically differentiated industries, skilled labour and trade," Economic Modelling, Elsevier, vol. 23(1), pages 1-19, January.
    16. Bilanakos, Christos & Heywood, John S. & Sessions, John & Theodoropoulos, Nikolaos, 2018. "Does demand for product quality increase worker training?," Journal of Economic Behavior & Organization, Elsevier, vol. 155(C), pages 159-177.
    17. Bilanakosa, Christos & Heywood, John S. & Sessions, John & Theodoropoulos, Nikolaos, 2017. "Worker Training and Quality Competition," GLO Discussion Paper Series 137, Global Labor Organization (GLO).
    18. Amani Kahloul & Rim Lahmandi-Ayed & Hejer Lasram & Didier Laussel, 2017. "Democracy and competition: Vertical differentiation and labor in a general equilibrium model," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 19(4), pages 860-874, August.
    19. BACCHIEGA, Emanuele, 2004. "Vertical differentiation, wage bargaining and intra-industry trade liberalization," LIDAM Discussion Papers CORE 2004028, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    20. Bacchiega, Emanuele & Randon, Emanuela & Zirulia, Lorenzo, 2012. "Strategic accessibility competition," Research in Economics, Elsevier, vol. 66(2), pages 195-212.

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    More about this item

    Keywords

    Quality competition; strategic effects; endogenous market structure; skills investments; multiple equilibria.;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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