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Foreign Competition, Multinational Firms, and One-Sided Wage Rigidity

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  • Braun Sebastian

    () (Kiel Institute for the World Economy)

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 equalized 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 labor supply of the latter economy may have profound impacts on labor market outcomes in both countries.

Suggested Citation

  • Braun Sebastian, 2010. "Foreign Competition, Multinational Firms, and One-Sided Wage Rigidity," Global Economy Journal, De Gruyter, vol. 10(2), pages 1-30, May.
  • Handle: RePEc:bpj:glecon:v:10:y:2010:i:2:n:4
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    References listed on IDEAS

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    Cited by:

    1. Horgos Daniel, 2012. "International Outsourcing and Wage Rigidity," Global Economy Journal, De Gruyter, pages 1-28.

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