Product Market Competition and Wage Formation

Project summary

Project B06 studies how product market competition affects wage inequality when workers have non-standard preferences. Part 1 focuses on how overconfidence of workers leads to misallocation of talent between and within workplaces and how globalization may aggravate this problem. Part 2 incorporates fairness preferences into wage bargaining to explain how the relation between wage inequality and competition is affected by firm characteristics. Finally, Part 3 studies how outsourcing weakens group identification among workers, thereby raising wage inequality. In contrast to other projects, we focus on general equilibrium effects.