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Foreign Competition, Multinational Firms, and the Effects of One-Sided Wage Rigidity

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Author Info
Sebastian Braun () (School of Business and Economics, Humboldt University of Berlin)

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Abstract

The paper studies the effects of a one-sided minimum wage in a two-country model of intra-industry trade, in which multinational firms arise endogenously. With positive levels of intra-industry trade the adverse employment and welfare effects of an asymmetric minimum wage are significantly larger than in a non-trading economy. Multinational firms generally mitigate the effect somewhat. Even though factor prices are not equalised across countries, a (binding) wage floor in one country will prop up wages in the other. The flexible wage country is insulated from shocks caused by factor accumulation in the rigid wage country, while an increase in the labour supply of the latter economy may have profound impacts on labour market outcomes in both countries.

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Publisher Info
Paper provided by JEPS in its series JEPS Working Papers with number 07-003.

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Length: 35 pages
Date of creation: May 2007
Date of revision:
Handle: RePEc:jep:wpaper:07003

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Related research
Keywords: Intra-Industry trade; wage rigidity; multinational firms; unemployment;

Find related papers by JEL classification:
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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References listed on IDEAS
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  1. Brander, James & Krugman, Paul, 1983. "A 'reciprocal dumping' model of international trade," Journal of International Economics, Elsevier, vol. 15(3-4), pages 313-321, November. [Downloadable!] (restricted)
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  2. Markusen, James R., 2002. "Multinational Firms and the Theory of International Trade," MPRA Paper 8380, University Library of Munich, Germany. [Downloadable!]
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  3. Kreickemeier, Udo & Nelson, Douglas, 2006. "Fair wages, unemployment and technological change in a global economy," Journal of International Economics, Elsevier, vol. 70(2), pages 451-469, December. [Downloadable!] (restricted)
  4. Davis, Donald R, 1998. "Does European Unemployment Prop Up American Wages? National Labor Markets and Global Trade," American Economic Review, American Economic Association, vol. 88(3), pages 478-94, June. [Downloadable!] (restricted)
  5. Oslington, Paul, 2002. "Factor market linkages in a global economy," Economics Letters, Elsevier, vol. 76(1), pages 85-93, June. [Downloadable!] (restricted)
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  6. Markusen, James R. & Venables, Anthony J., 1998. "Multinational firms and the new trade theory," Journal of International Economics, Elsevier, vol. 46(2), pages 183-203, December. [Downloadable!] (restricted)
    Other versions:
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