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Trade as a Wage Disciplining Device

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Author Info
Persyn, Damiaan () (Catholic University of Leuven)

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Abstract

We estimate how trade openness affects the relationship between wages, labour productivity and foreign wages using sector-level time series for several EU member states. In some countries wages became less responsive to foreign wages as trade costs declined. We show this counter-intuitive result is as expected when wages are set by a monopoly union with a preference for wages relative to employment. Trade liberalisation then leads to more wage discipline by forcing unions to set wages more in line with labour productivity. Foreign wages simultaneously become less relevant. Our results call to rethink how trade liberalisation is affecting unionized labour markets, and offer a possible explanation for the mixed evidence found by some tests for international factor price convergence.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3786.

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Length: 28 pages
Date of creation: Oct 2008
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Handle: RePEc:iza:izadps:dp3786

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Related research
Keywords: unions; globalisation; economic geography; factor price equalisation;

Other versions of this item:

Find related papers by JEL classification:
J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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References listed on IDEAS
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    Other versions:
  3. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June. [Downloadable!] (restricted)
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    Other versions:
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  20. John M. Abowd & Thomas Lemieux, 1990. "The Effects of International Competiton on Collective Bargaining Outcomes: A Comparison of the United States and Canada," NBER Working Papers 3352, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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    Other versions:
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