Trade and Race-to-the-bottom Wage Competition
AbstractThis paper looks at how increasing economic integration affects wage bargaining between unions and firms if firms are internationally mobile. Using a simple NEG model we find that if firms are perfectly mobile, countries are sufficiently symmetric and wages are bargained over at the firm level they are set on the competitive level. For a more centralised bargaining scheme wage demands are made even if firms can perfectly threat to relocate. If countries are asymmetric full agglomeration becomes possible and rent-sharing between unions and firms then occurs as unions are able to appropriate part of the agglomeration rents in form of higher wages. As agglomeration rents are a hump-shaped function of trade freeness in the larger country this implies the same non-monotonic relationship between wages and the level of trade freeness. We then investigate the case where wage bargaining takes place sequentially in each country. The comparative statics of the international Nash-equilibrium in wages show increased international economic integration only leads to tighter international wage competition if countries are sufficiently symmetric. For the asymmetric case the comparative advantage and relative size of the country determine whether and how economic integration leads to lower wages.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by LICOS - Centre for Institutions and Economic Performance, KU Leuven in its series LICOS Discussion Papers with number 17306.
Length: 39 pages
Date of creation: 2006
Date of revision:
Contact details of provider:
Postal: De Bériotstraat 34, B-3000 Leuven
Phone: +32 (0) 16 / 32 6598
Fax: +32 (0) 16 / 32 6599
Web page: http://www.econ.kuleuven.be/licos
More information through EDIRC
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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-04-29 (All new papers)
- NEP-INT-2006-04-29 (International Trade)
- NEP-LAB-2006-04-29 (Labour Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Dixit, Avinash K, 1986. "Comparative Statics for Oligopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(1), pages 107-22, February.
- Rodney D. Ludema & Ian Wooton, 1998.
"Economic Geography and the Fiscal Effects of Regional Integration,"
- Ludema, Rodney D. & Wooton, Ian, 2000. "Economic geography and the fiscal effects of regional integration," Journal of International Economics, Elsevier, vol. 52(2), pages 331-357, December.
- Ludema, Rodney D & Wooton, Ian, 1998. "Economic Geography and the Fiscal Effects of Regional Integration," CEPR Discussion Papers 1822, C.E.P.R. Discussion Papers.
- Rodney D. Ludema & Ian Wooton, 1998. "Economic Geography and the Fiscal Effects of Regional Integration," Working Papers 9809, Business School - Economics, University of Glasgow.
- Martin, Philippe & Rogers, Carol Ann, 1995.
"Industrial location and public infrastructure,"
Journal of International Economics,
Elsevier, vol. 39(3-4), pages 335-351, November.
- Picard, P. M. & Toulemonde, E., 2003. "Regional asymmetries: economies of agglomeration versus unionized labor markets," Regional Science and Urban Economics, Elsevier, vol. 33(2), pages 223-249, March.
- Naylor, Robin, 1999.
"Union Wage Strategies and International Trade,"
Royal Economic Society, vol. 109(452), pages 102-25, January.
- Naylor, Robin, 1997. "Union Wage Strategies and International Trade," The Warwick Economics Research Paper Series (TWERPS) 480, University of Warwick, Department of Economics.
- Richard E. Baldwin & Paul Krugman, 2002.
"Agglomeration, Integration and Tax Harmonization,"
NBER Working Papers
9290, National Bureau of Economic Research, Inc.
- Baldwin, Richard & Krugman, Paul, 2000. "Agglomeration, Integration and Tax Harmonization," CEPR Discussion Papers 2630, C.E.P.R. Discussion Papers.
- Richard Baldwin; Paul Krugman, 2001. "Agglomeration, Integration and Tax Harmonization," IHEID Working Papers 01-2001, Economics Section, The Graduate Institute of International Studies.
- Mezzetti, Claudio & Dinopoulos, Elias, 1991.
"Domestic unionization and import competition,"
Journal of International Economics,
Elsevier, vol. 31(1-2), pages 79-100, August.
- Jakob Roland Munch, 2003. "The Location of Firms in Unionized Countries," Scandinavian Journal of Economics, Wiley Blackwell, vol. 105(1), pages 49-72, 03.
- Cabral, Luís M B & Mata, José, 2001.
"On the Evolution of the Firm Size Distribution: Facts and Theory,"
CEPR Discussion Papers
3045, C.E.P.R. Discussion Papers.
- Lu�s M B Cabral & Jos� Mata, 2003. "On the Evolution of the Firm Size Distribution: Facts and Theory," American Economic Review, American Economic Association, vol. 93(4), pages 1075-1090, September.
- Trefler, Daniel, 1993. "International Factor Price Differences: Leontief Was Right!," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 961-87, December.
- Brander, James A. & Spencer, Barbara J., 1988. "Unionized oligopoly and international trade policy," Journal of International Economics, Elsevier, vol. 24(3-4), pages 217-234, May.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.