Appropriation, firm dynamics, and wage inequality

This paper examines the income distribution and welfare effects of appropriation activities in an economy. 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 widens when the capital accrued is large. In the long run, with free entry and exit of firms, an increase in appropriation can cause firms to enter when the accrued capital is not large. This gives rise to a win-win outcome by raising the wages of skilled and unskilled labor. However, if accrued capital is large, firms exit and a lose-lose situation may occur in which skilled and unskilled wages are reduced.