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Economic Integration, Factor Mobility, and Wage Convergence

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  • Saint-Paul, Gilles

Abstract

This paper studies the effect of economic integration of two regions on the mobility of skilled and unskilled workers across regions and on the resulting location of industrial activity. In particular, it studies what happens when wages in both regions are set by the unions of the ‘West’ – the region with a greater initial relative stock of human capital. We show that in some circumstances, it is in the interest of the West’s unions to set a speed of wage convergence greater than equilibrium, thereby generating unemployment in the ‘East’. This slows the migration of human capital towards the East, but quickens the migration of raw labour towards the West. A greater share of economic activity is eventually located in the western region. Unions in the West will benefit from this, provided human capital has low migration costs relative to raw labour.

Suggested Citation

  • Saint-Paul, Gilles, 1997. "Economic Integration, Factor Mobility, and Wage Convergence," CEPR Discussion Papers 1597, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:1597
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    Cited by:

    1. Athanasios Vamvakidis, 2009. "Regional Wage Differentiation and Wage Bargaining Systems in the European Union," Financial Theory and Practice, Institute of Public Finance, vol. 33(1), pages 73-87.
    2. Mr. Athanasios Vamvakidis, 2008. "Regional Wage Differentiation and Wage Bargaining Systems in the EU," IMF Working Papers 2008/043, International Monetary Fund.
    3. Bande, Roberto & Fernández, Melchor & Montuenga, Víctor, 2008. "Regional unemployment in Spain: Disparities, business cycle and wage setting," Labour Economics, Elsevier, vol. 15(5), pages 885-914, October.
    4. Luminita VOCHITA & George CIOBANU & Andreea CIOBANU, 2008. "Implications of wage bargaining systems on regional differentiation in the European Union," Annals of University of Craiova - Economic Sciences Series, University of Craiova, Faculty of Economics and Business Administration, vol. 2(36), pages 862-873, may.
    5. Martin Hallet, 1998. "The regional impact of the single currency," ERSA conference papers ersa98p27, European Regional Science Association.
    6. Kaji, Sahoko, 1998. "Successful Structural Reforms after EMU," Journal of the Japanese and International Economies, Elsevier, vol. 12(4), pages 507-534, December.
    7. Hallet, Martin, 1999. "The Impact of EMU on cohesion - further research needed?," ERSA conference papers ersa99pa087, European Regional Science Association.

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    More about this item

    Keywords

    Centralized Wage Setting; Human Capital; Migration; Political Economy; Regional Integration; Unemployment; Unions; Wage Formation;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J5 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers

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