Wages, concentration, and import penetration: An analysis of the interrelationships

Abstract

The significant increase in imports in recent years ~ has raised a variety of questions regard. ing the abili ty of U.S. companies to compete effectively with foreign companies. One question that has emerged is whether market power in both product and labor markets has been responsible for the increased import penetration. This particular question has a sound foundat ion in the l i terature of industrial organization. With respect to product market power, both theory and a large body of evidence suggest that prices and profits are relatively high in oligopolistic, or highly concentrated, industries, i .e. , those with few producers. 2 Therefore, it seems quite reasonable to expect that producers in other countries will be attracted by the relatively high profits that characterize concentrated industries. With respect to labor market power, there is at least some individual case support for the argument that unions, by establishing some degree of monopo ly over the supply o f labor, are able to obtain wage increases higher than can be justified by product ivi ty increases. The result, o f course, is to push up product ion costs so