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Trade Liberalisation, Subcontracting and Unionised Wage

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  • Dibyendu Maiti
  • Arijit Mukherjee

Abstract

We develop a simple framework to show the effects of trade cost reduction on unionized wage, employment and domestic welfare when a domestic firm strategically chooses the amount of formal in-house production and subcontracting to the informal sector. We show that a lower trade cost increases unionized wage and domestic firm’s formal production and employment, and reduces its informal production. Free trade maximizes domestic welfare if the trade cost represents a transportation cost. However, if the trade cost represents a domestic tariff, the domestic welfare maximizing tariff is positive.

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Bibliographic Info

Paper provided by University of Nottingham, GEP in its series Discussion Papers with number 10/07.

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Handle: RePEc:not:notgep:10/07

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Postal: School of Economics University of Nottingham University Park Nottingham NG7 2RD
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Web page: http://www.nottingham.ac.uk/gep/index.aspx
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Keywords: In-house production; Informal sector; Subcontracting; Wage; welfare;

References

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  1. Munch, Jakob Roland & Skaksen, Jan Rose, 2002. " Product Market Integration and Wages in Unionized Countries," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(2), pages 289-99, June.
  2. Benjamin Aleman-Castilla, 2006. "The Effect of Trade Liberalization on Informality and Wages: Evidence from Mexico," CEP Discussion Papers dp0763, Centre for Economic Performance, LSE.
  3. Filip Abraham & Jozef Konings & Stijn Vanormelingen, 2007. "The Effect of Globalization on Union Bargaining and Price-Cost Margins of Firms," LICOS Discussion Papers 18107, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  4. Paulo Bastos & Udo Kreickemeier, . "Unions, Competition and International Trade in General Equilibrium," Discussion Papers 08/28, University of Nottingham, GEP.
  5. Huizinga, H.P., 1993. "International market integration and union wage bargaining," Open Access publications from Tilburg University urn:nbn:nl:ui:12-155144, Tilburg University.
  6. Jan Rose SØRENSEN, 1993. "Integration of Product Markets when Labour Markets are Unionized," Discussion Papers (REL - Recherches Economiques de Louvain) 1993044, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  7. Ulyssea, Gabriel, 2010. "Regulation of entry, labor market institutions and the informal sector," Journal of Development Economics, Elsevier, vol. 91(1), pages 87-99, January.
  8. Arijit Mukherjee, 2008. "Unionised Labour Market and Strategic Production Decision of a Multinational," Economic Journal, Royal Economic Society, vol. 118(532), pages 1621-1639, October.
  9. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173, September.
  10. Naylor, Robin, 1999. "Union Wage Strategies and International Trade," Economic Journal, Royal Economic Society, vol. 109(452), pages 102-25, January.
  11. Cragg, Michael Ian & Epelbaum, Mario, 1996. "Why has wage dispersion grown in Mexico? Is it the incidence of reforms or the growing demand for skills?," Journal of Development Economics, Elsevier, vol. 51(1), pages 99-116, October.
  12. Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March.
  13. Lopez, Monica Correa & Naylor, Robin A., 2004. "The Cournot-Bertrand profit differential: A reversal result in a differentiated duopoly with wage bargaining," European Economic Review, Elsevier, vol. 48(3), pages 681-696, June.
  14. Anthony Creane & Carl Davidson, 2004. "Multidivisional firms, internal competition, and the merger paradox," Canadian Journal of Economics, Canadian Economics Association, vol. 37(4), pages 951-977, November.
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