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Endogenous domestic market structure and the effects of a trade cost reduction in a unionised industry

  • Mukherjee, Arijit

In contrast to the existing partial equilibrium literature considering the effects of a trade cost reduction on unionised wage under a given market structure, we show the effects by determining the domestic market structure endogenously. A lower trade cost reduces the number of active domestic firms, but it increases unionised wage in the active domestic firms under decentralised unions. Although a lower trade cost increases wage in the active domestic firms, it reduces domestic employment and total union utility at the free entry equilibrium. So, a trade cost reduction benefits domestic employed workers by increasing the unionised wage, but its effect on the total domestic workers is not favourable. If there is a centralised union, a lower trade cost reduces the number of active domestic firms, unionised wage, domestic employment and union utility.

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File URL: http://www.sciencedirect.com/science/article/pii/S0264999313000230
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Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 32 (2013)
Issue (Month): C ()
Pages: 30-33

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Handle: RePEc:eee:ecmode:v:32:y:2013:i:c:p:30-33
DOI: 10.1016/j.econmod.2013.01.020
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30411

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