Abstract
This paper develops a model that incorporates workers' fair wage preferences into a general equilibrium framework with monopolistic competition between heterogeneous firmsla Melitz (2003). By assuming that the wage considered to be fair by workers depends on the economic success of the firm they are working in, we can study the determinants of profits, involuntary unemploy- ment and within-group wage inequality in a unified framework. We use this model to investigate the eects of globalisation. In a benchmark case with identical costs of entering domestic and foreign markets, there are gains from trade accompanied by distibutional conflicts, which have so far not been ac- counted for in the literature: a simultaneous increase of average profits and involuntary unemployment as well as a surge in within-group wage inequality.
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