Trade cost reduction, subcontracting and unionised wage
AbstractWe show the effects of trade cost reduction in the presence of a domestic firm's strategic output allocation between formal in-house production and subcontracting to the informal sector. Considering a one-way trade, we show that trade cost reduction increases the in-house unionised wage, in-house employment, union utility, the formal–informal wage gap and consumer surplus, it reduces informal production and the profit of the domestic firm, and it creates an ambiguous effect on welfare. Whether trade cost reduction increases the income gap between the domestic producer and the labour union is ambiguous, and depends on the trade cost and the cost of subcontracting. Considering a two-way trade with symmetric segmented markets, we show that a symmetric trade cost reduction reduces the domestic unionised wage, domestic in-house employment, union utility, it increases informal production, consumer surplus and it creates ambiguous effects of the profits.
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Bibliographic InfoArticle provided by Elsevier in its journal Labour Economics.
Volume (Year): 21 (2013)
Issue (Month): C ()
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Trade cost; Subcontracting; Unionised wage;
Find related papers by JEL classification:
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
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