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The impact of trade on employment, welfare, and income distribution in unionized general oligopolistic equilibrium

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  • Egger, Hartmut
  • Etzel, Daniel

Abstract

This paper sets up a multi-sector general oligopolistic equilibrium trade model in which all firms face wage claims of firm-level unions. By accounting for productivity differences across industries, the model features income inequality along multiple lines, including inequality between firm owners and workers as well as within these two groups of agents, and involuntary unemployment. We use this setting to study the impact of trade liberalization on key macroeconomic performance measures. In particular, we show that a movement from autarky to free trade with a fully symmetric partner country lowers union wage claims and therefore stimulates employment and raises welfare. Whether firms can extract a larger share of rents in the open economy depends on the competitive environment in the product market. Furthermore, the distribution of profit income across firm owners remains unaffected, while the distribution of wage income becomes more equal when a country opens up to trade with a fully symmetric trading partner. We also analyze how country size differences and technological dissimilarity of trading partners affect the results from our analysis.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 56 (2012)
Issue (Month): 6 ()
Pages: 1119-1135

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Handle: RePEc:eee:eecrev:v:56:y:2012:i:6:p:1119-1135

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Web page: http://www.elsevier.com/locate/eer

Related research

Keywords: General oligopolistic equilibrium; Unionized labor market; Trade liberalization; Income distribution;

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References

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Citations

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Cited by:
  1. Hartmut Egger & Daniel Etzel, 2012. "Union Wage Setting and International Trade," CESifo Working Paper Series 3929, CESifo Group Munich.
  2. Colacicco, Rudy, 2012. "Strategic Trade Policy in General Oligopolistic Equilibrium," MPRA Paper 38118, University Library of Munich, Germany.
  3. Gabriel J. Felbermayr & Andreas Hauptmann & Hans-Jörg Schmerer, 2012. "International Trade and Collective Bargaining Outcomes: Evidence from German Employer-Employee Data," Ifo Working Paper Series Ifo Working Paper No. 130, Ifo Institute for Economic Research at the University of Munich.
  4. Colacicco, Rudy, 2012. "The "Average" Within-Sector Firm Heterogeneity in General Oligopolistic Equilibrium," MPRA Paper 40212, University Library of Munich, Germany.

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