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Trade as a Wage Disciplining Device

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  • Damiaan Persyn

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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Bibliographic Info

Paper provided by LICOS - Centre for Institutions and Economic Performance, KU 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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Keywords: Unions; globalisation; economic geography; factor price equalisation;

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Cited by:
  1. Martin Bijsterbosch & Marcin Kolasa, 2010. "FDI and productivity convergence in Central and Eastern Europe: an industry-level investigation," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 145(4), pages 689-712, January.
  2. Éva Polgár & Julia Wörz, 2010. "No risk and some fun? Trade and wages in the enlarged European Union," Empirica, Springer, vol. 37(2), pages 127-163, May.
  3. Polgár, Éva Katalin & Wörz, Julia, 2010. "Trade with central and eastern Europe: Is it really a threat to wages in the west?," Working Paper Series 1244, European Central Bank.
  4. repec:onb:oenbwp:y:2009:i:1:b:1 is not listed on IDEAS

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