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Trade as a Wage Disciplining Device

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Author Info
Damiaan Persyn

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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 unionised labour markets, and offer a possible explanation for the mixed evidence found by some tests for international factor price convergence.

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File URL: http://www.econ.kuleuven.ac.be/licos/DP/DP2008/DP210.pdf
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Paper provided by LICOS - Centre for Institutions and Economic Performance, K.U.Leuven in its series LICOS Discussion Papers with number 21008.

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Date of creation: 2008
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Handle: RePEc:lic:licosd:21008

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

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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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    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)
  4. Pehkonen, Jaakko, 1990. " Trade Union Objectives and the Cyclical Variability of Wages and Employment," Scandinavian Journal of Economics, Blackwell Publishing, vol. 92(4), pages 573-86.
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  7. Thierry Mayer & Soledad Zignago, 2005. "Market Access in Global and Regional Trade," Working Papers 2005-02, CEPII research center. [Downloadable!]
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  11. Damiaan Persyn, 2006. "Trade and Race-to-the-bottom Wage Competition," LICOS Discussion Papers 17306, LICOS - Centre for Institutions and Economic Performance, K.U.Leuven. [Downloadable!]
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    Other versions:
  13. Head, Keith & Mayer, Thierry, 2004. "The empirics of agglomeration and trade," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 59, pages 2609-2669 Elsevier. [Downloadable!] (restricted)
    Other versions:
  14. Choi, E Kwan & Harrigan, James, 2004. "Handbook of International Trade," Staff General Research Papers 11375, Iowa State University, Department of Economics.
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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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  22. Marcel P. Timmer & Mary O’Mahony & Bart van Ark, 2007. "EU KLEMS Growth and Productivity Accounts: An Overview," International Productivity Monitor, Centre for the Study of Living Standards, vol. 14, pages 71-85, Spring. [Downloadable!]
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    Other versions:
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