Abstract
The debate about in equality has concentrated on trade and/or technology as potential explanations. This paper argues that openness or globalisation in general, instead of the narrow definition of trade, is an important component missing from the discussion about in equality trends. To be specific, openness allows firms to increase their fallback position by presenting a credible threat of relocation. Firms do not have to actually relocate; they just have to present a credible threat to undermine worker’s welfare. This area of research, currently underdeveloped, could potentially improve our discussion about in equality.
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