Appropriation, firm dynamics, and wage inequality

• Author: Chi‐Chur Chao,Eden S. H. Yu
• Date: 01 March 2021
• DOI: http://doi.org/10.1111/ijet.12294
• Published date: 01 March 2021

Int J Econ Theory. 2021;17:118–129.wileyonlinelibrary.com/journal/ijet118

|

© 2020 IAET

Received: 8 January 2020

|

Accepted: 27 May 2020

DOI: 10.1111/ijet.12294

ORIGINAL ARTICLE

Appropriation, firm dynamics, and wage

inequality

Eden S. H. Yu

1,2

|Chi‐Chur Chao

3

1

School of Economics, Henan University,

Kaifeng, China

2

Chu Hai College of Higher Education,

Hong Kong

3

Department of Economics, Deakin

University, Melbourne, Australia

Correspondence

Eden S. H. Yu, Faculty of Business, Chu

Hai College of Higher Education, 80 Castle

Peak Road, Castle Peak Bay, Tuen Mun,

Hong Kong.

Email: edenyu@chuhai.edu.hk

Funding information

Hong Kong, Grant/Award Number: UGC/

IDS13/16

Abstract

This paper examines the income distribution and

welfare effects of appropriation activities in an econ-

omy. In the short run, with a given number of firms,

appropriation can narrow wage inequality between

skilled and unskilled labor when the capital resources

accrued by appropriators are not large. However,wage

inequality widenswhen the capital accrued is large. In

thelongrun,withfreeentryandexitoffirms,an

increase in appropriation can cause firms to enter

when the accrued capital is not large. This gives rise to

awin–win outcome by raising the wages of skilled and

unskilled labor. However, if accrued capital is large,

firms exit and a lose–lose situationmay occur in which

skilled and unskilled wages are reduced.

KEYWORDS

appropriation, firm entry/exit, wage inequality

JEL CLASSIFICATION

D58; L33; R23

1|INTRODUCTION

Since the beginning of humankind, production activities and social conflicts have coexisted in

society. Resources can be used for the constructive production of goods and services, but limited

resources may cause social conflict, resulting in appropriation, corruption, rent seeking, and so

on. How to optimally allocate and efficiently use limited resources has become a major question

for policy‐makers.

We are indebted to James Markusen, Kazuo Nishimura, and a referee for valuable comments and suggestions.