IDEAS home Printed from https://ideas.repec.org/a/eee/eecrev/v56y2012i6p1119-1135.html
   My bibliography  Save this article

The impact of trade on employment, welfare, and income distribution in unionized general oligopolistic equilibrium

Author

Listed:
  • Egger, Hartmut
  • Etzel, Daniel

Abstract

This paper sets up a multi-sector general oligopolistic equilibrium trade model in which all firms face wage claims of firm-level unions. By accounting for productivity differences across industries, the model features income inequality along multiple lines, including inequality between firm owners and workers as well as within these two groups of agents, and involuntary unemployment. We use this setting to study the impact of trade liberalization on key macroeconomic performance measures. In particular, we show that a movement from autarky to free trade with a fully symmetric partner country lowers union wage claims and therefore stimulates employment and raises welfare. Whether firms can extract a larger share of rents in the open economy depends on the competitive environment in the product market. Furthermore, the distribution of profit income across firm owners remains unaffected, while the distribution of wage income becomes more equal when a country opens up to trade with a fully symmetric trading partner. We also analyze how country size differences and technological dissimilarity of trading partners affect the results from our analysis.

Suggested Citation

  • Egger, Hartmut & Etzel, Daniel, 2012. "The impact of trade on employment, welfare, and income distribution in unionized general oligopolistic equilibrium," European Economic Review, Elsevier, vol. 56(6), pages 1119-1135.
  • Handle: RePEc:eee:eecrev:v:56:y:2012:i:6:p:1119-1135
    DOI: 10.1016/j.euroecorev.2012.03.006
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0014292112000499
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. J. Peter Neary, 2016. "International Trade in General Oligopolistic Equilibrium," Review of International Economics, Wiley Blackwell, vol. 24(4), pages 669-698, September.
    2. Hartmut Egger & Peter Egger & James R. Markusen, 2012. "International Welfare And Employment Linkages Arising From Minimum Wages," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(3), pages 771-790, August.
    3. Walde, Klaus & Wei[ss], Pia, 2007. "International competition, downsizing and wage inequality," Journal of International Economics, Elsevier, vol. 73(2), pages 396-406, November.
    4. Hildreth, Andrew K G & Oswald, Andrew J, 1997. "Rent-Sharing and Wages: Evidence from Company and Establishment Panels," Journal of Labor Economics, University of Chicago Press, vol. 15(2), pages 318-337, April.
    5. Giulia Faggio & Kjell G. Salvanes & John Van Reenen, 2010. "The evolution of inequality in productivity and wages: panel data evidence," Industrial and Corporate Change, Oxford University Press, vol. 19(6), pages 1919-1951, December.
    6. Lawrence F. Katz & Kevin M. Murphy, 1992. "Changes in Relative Wages, 1963–1987: Supply and Demand Factors," The Quarterly Journal of Economics, Oxford University Press, vol. 107(1), pages 35-78.
    7. Felbermayr, Gabriel & Prat, Julien & Schmerer, Hans-Jörg, 2011. "Trade and unemployment: What do the data say?," European Economic Review, Elsevier, vol. 55(6), pages 741-758, August.
    8. Kjell Erik Lommerud & Frode Meland & Lars S¯rgard, 2003. "Unionised Oligopoly, Trade Liberalisation and Location Choice," Economic Journal, Royal Economic Society, vol. 113(490), pages 782-800, October.
    9. repec:wsi:wschap:9789813224919_0012 is not listed on IDEAS
    10. Hartmut Egger & Udo Kreickemeier, 2017. "Fairness, Trade, and Inequality," World Scientific Book Chapters,in: International Trade and Labor Markets Welfare, Inequality and Unemployment, chapter 12, pages 339-380 World Scientific Publishing Co. Pte. Ltd..
    11. Olivier Blanchard & Francesco Giavazzi, 2003. "Macroeconomic Effects of Regulation and Deregulation in Goods and Labor Markets," The Quarterly Journal of Economics, Oxford University Press, vol. 118(3), pages 879-907.
    12. Philip Du Caju & Gábor Kátay & Ana Lamo & Daphne Nicolitsas & Steven Poelhekke, 2010. "Inter-Industry Wage Differentials In EU Countries: What Do Cross-Country Time Varying Data Add to the Picture?," Journal of the European Economic Association, MIT Press, vol. 8(2-3), pages 478-486, 04-05.
    13. Naylor, Robin, 1999. "Union Wage Strategies and International Trade," Economic Journal, Royal Economic Society, vol. 109(452), pages 102-125, January.
    14. Dutt, Pushan & Mitra, Devashish & Ranjan, Priya, 2009. "International trade and unemployment: Theory and cross-national evidence," Journal of International Economics, Elsevier, vol. 78(1), pages 32-44, June.
    15. Alesina, Alberto & Perotti, Roberto, 1997. "The Welfare State and Competitiveness," American Economic Review, American Economic Association, vol. 87(5), pages 921-939, December.
    16. Lawrence F. Katz & Lawrence H. Summers, 1989. "Can Interindustry Wage Differentials Justify Strategic Trade Policy?," NBER Chapters,in: Trade Policies for International Competitiveness, pages 85-124 National Bureau of Economic Research, Inc.
    17. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-959, December.
    18. Hartmut Egger & Udo Kreickemeier, 2017. "Firm Heterogeneity and the Labor Market Effects of Trade Liberalization," World Scientific Book Chapters,in: International Trade and Labor Markets Welfare, Inequality and Unemployment, chapter 10, pages 265-306 World Scientific Publishing Co. Pte. Ltd..
    19. Barth, Erling & Lucifora, Claudio, 2006. "Wage Dispersion, Markets and Institutions: The Effects of the Boom in Education on the Wage Structure," IZA Discussion Papers 2181, Institute for the Study of Labor (IZA).
    20. Elhanan Helpman & Oleg Itskhoki & Stephen Redding, 2010. "Inequality and Unemployment in a Global Economy," Econometrica, Econometric Society, vol. 78(4), pages 1239-1283, July.
    21. Oswald, Andrew J, 1985. " The Economic Theory of Trade Unions: An Introductory Survey," Scandinavian Journal of Economics, Wiley Blackwell, vol. 87(2), pages 160-193.
    22. Krugman, Paul R., 2000. "Technology, trade and factor prices," Journal of International Economics, Elsevier, vol. 50(1), pages 51-71, February.
    23. Mezzetti, Claudio & Dinopoulos, Elias, 1991. "Domestic unionization and import competition," Journal of International Economics, Elsevier, vol. 31(1-2), pages 79-100, August.
    24. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555 Elsevier.
    25. Josef Zweimuller & Rudolf Winter-Ebmer, 1999. "Firm-Size Wage Differentials in Switzerland: Evidence from Job-Changers," American Economic Review, American Economic Association, vol. 89(2), pages 89-93, May.
    26. Huizinga, Harry, 1993. " International Market Integration and Union Wage Bargaining," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(2), pages 249-255.
    27. Davis, Donald R. & Harrigan, James, 2011. "Good jobs, bad jobs, and trade liberalization," Journal of International Economics, Elsevier, vol. 84(1), pages 26-36, May.
    28. Naylor, Robin, 2002. "The Effects Of Entry In Bilateral Oligopoly," The Warwick Economics Research Paper Series (TWERPS) 638, University of Warwick, Department of Economics.
    29. Naylor, Robin, 1998. "International trade and economic integration when labour markets are generally unionised," European Economic Review, Elsevier, vol. 42(7), pages 1251-1267, July.
    30. Alex Grey, 1993. "Interindustry Wage Differentials in Manufacturing: Rents and Industrial Structure," Canadian Journal of Economics, Canadian Economics Association, vol. 26(3), pages 525-535, August.
    31. Du Caju, Philip & Rycx, Francois & Tojerow, Ilan, 2008. "Rent-Sharing and the Cyclicality of Wage Differentials," IZA Discussion Papers 3844, Institute for the Study of Labor (IZA).
    32. repec:fip:fedgsq:y:2007:i:feb6 is not listed on IDEAS
    33. Thorsten Schank & Claus Schnabel & Joachim Wagner, 2016. "Do Exporters Really Pay Higher Wages? First Evidence from German Linked Employer–Employee Data," World Scientific Book Chapters,in: Microeconometrics of International Trade, chapter 5, pages 177-213 World Scientific Publishing Co. Pte. Ltd..
    34. Dornbusch, Rudiger & Fischer, Stanley & Samuelson, Paul A, 1977. "Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods," American Economic Review, American Economic Association, vol. 67(5), pages 823-839, December.
    35. Robert Plasman & François Rycx & Ilan Tojerow, 2006. "Industry wage differentials, unobserved ability, and rent-sharing : Evidence from matched worker-firm data, 1995-2002," Working Paper Research 90, National Bank of Belgium.
    36. Brander, James A., 1981. "Intra-industry trade in identical commodities," Journal of International Economics, Elsevier, vol. 11(1), pages 1-14, February.
    37. Carl Davidson & Steven J. Matusz, 2006. "Trade Liberalization And Compensation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(3), pages 723-747, August.
    38. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-293, March.
    39. Spector, David, 2004. "Competition and the capital-labor conflict," European Economic Review, Elsevier, vol. 48(1), pages 25-38, February.
    40. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    41. David H. Autor & Lawrence F. Katz & Melissa S. Kearney, 2008. "Trends in U.S. Wage Inequality: Revising the Revisionists," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 300-323, May.
    42. William T. Dickens & Lawrence F. Katz, 1987. "Inter-Industry Wage Differences and Theories of Wage Determination," NBER Working Papers 2271, National Bureau of Economic Research, Inc.
    43. Davidson, Carl & Martin, Lawrence & Matusz, Steven, 1999. "Trade and search generated unemployment," Journal of International Economics, Elsevier, vol. 48(2), pages 271-299, August.
    44. repec:wsi:wschap:9789813224919_0006 is not listed on IDEAS
    45. Klaus Wälde & Pia Weiss, 2004. "International Competition, Slim Firms and Wage Inequality," CESifo Working Paper Series 1254, CESifo Group Munich.
    46. Richard Layard & Stephen Nickell, 1990. "Is Unemployment Lower if Unions Bargain over Employment?," The Quarterly Journal of Economics, Oxford University Press, vol. 105(3), pages 773-787.
    47. Matusz, Steven J, 1996. "International Trade, the Division of Labor, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(1), pages 71-84, February.
    48. David G. Blanchflower & Andrew J. Oswald & Peter Sanfey, 1996. "Wages, Profits, and Rent-Sharing," The Quarterly Journal of Economics, Oxford University Press, vol. 111(1), pages 227-251.
    49. Kenneth F. Scheve & Matthew J. Slaughter, 2001. "Globalization and the Perceptions of American Workers," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 109.
    50. Perotti, Roberto & Alesina, Alberto, 1997. "The Welfare State and Competitiveness," Scholarly Articles 4553027, Harvard University Department of Economics.
    51. Richard A. Brecher, 1974. "Minimum Wage Rates and the Pure Theory of International Trade," The Quarterly Journal of Economics, Oxford University Press, vol. 88(1), pages 98-116.
    52. 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).
    53. Eckel, Carsten & Egger, Hartmut, 2009. "Wage bargaining and multinational firms," Journal of International Economics, Elsevier, vol. 77(2), pages 206-214, April.
    54. Naylor, Robin A., 2002. "The effects of entry in bilateral oligopoly," Economic Research Papers 269412, University of Warwick - Department of Economics.
    55. Paulo Bastos & Udo Kreickemeier, 2017. "Unions, Competition, and International Trade in General Equilibrium," World Scientific Book Chapters,in: International Trade and Labor Markets Welfare, Inequality and Unemployment, chapter 6, pages 143-172 World Scientific Publishing Co. Pte. Ltd..
    56. Bound, John & Johnson, George, 1992. "Changes in the Structure of Wages in the 1980's: An Evaluation of Alternative Explanations," American Economic Review, American Economic Association, vol. 82(3), pages 371-392, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Borrs, Linda & Knauth, Florian, 2016. "The impact of trade and technology on wage components," DICE Discussion Papers 241, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    2. Baumgarten, Daniel & Irlacher, Michael & Koch, Michael, 2018. "Offshoring and non-monotonic employment effects across industries in general equilibrium," Discussion Papers in Economics 43049, University of Munich, Department of Economics.
    3. Wrona, Jens & Kreickemeier, Udo, 2016. "Industrialisation and the Big Push in a Global Economy," Annual Conference 2016 (Augsburg): Demographic Change 145707, Verein für Socialpolitik / German Economic Association.
    4. repec:kap:iecepo:v:14:y:2017:i:2:d:10.1007_s10368-016-0371-1 is not listed on IDEAS
    5. Brändle, Tobias & Kalweit, René, 2016. "The Employment Effects of the EU Eastern Enlargement in Germany," Annual Conference 2016 (Augsburg): Demographic Change 145502, Verein für Socialpolitik / German Economic Association.
    6. Palokangas, Tapio K., 2017. "Labor Market Regulation, International Trade and Footloose Capital," IZA Discussion Papers 10468, Institute for the Study of Labor (IZA).
    7. Hartmut Egger & Daniel Etzel, 2012. "Union Wage Setting and International Trade," IAAEU Discussion Papers 201209, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
    8. Rudy Colacicco, 2016. "-Environment, Imperfect Competition, and Trade: Insights for Optimal Policy in General Equilibrium," Economics, Finance and Accounting Department Working Paper Series n273-16.pdf, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
    9. Colacicco, Rudy, 2012. "Strategic Trade Policy in General Oligopolistic Equilibrium," MPRA Paper 38118, University Library of Munich, Germany.
    10. Gabriel Felbermayr & Andreas Hauptmann & Hans-Jörg Schmerer, 2014. "International Trade and Collective Bargaining Outcomes: Evidence from German Employer–Employee Data," Scandinavian Journal of Economics, Wiley Blackwell, vol. 116(3), pages 820-837, July.
    11. Hosaki Sano, 2018. "The endogenous decisions of unionization and international trade: A general oligopolistic equilibrium model analysis," Discussion Papers in Economics and Business 18-14, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
    12. Irlacher, Michael & Baumgarten, Daniel & Koch, Michael, 2017. "Short- versus long-run effects of offshoring when sectors are heterogeneous," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168272, Verein für Socialpolitik / German Economic Association.
    13. Rudy Colacicco, 2015. "Ten Years Of General Oligopolistic Equilibrium: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 29(5), pages 965-992, December.
    14. Mariam Camarero & Gaetano D’Adamo & Cecilio Tamarit, 2014. "The role of Institutions in explaining wage determination in the Euro Area: a panel cointegration approach," Working Papers 2014/15, Economics Department, Universitat Jaume I, Castellón (Spain).
    15. repec:bla:reviec:v:25:y:2017:i:1:p:76-97 is not listed on IDEAS
    16. Kamei, Keita, 2014. "International Trade, Unemployment, and Firm Owners in a General Equilibrium with Oligopoly," MPRA Paper 59388, University Library of Munich, Germany.
    17. Catia Montagna & Antonella Nocco, 2015. "(De)Unionization, Trade Liberalization and Selection," Metroeconomica, Wiley Blackwell, vol. 66(1), pages 91-122, February.
    18. Ioana Veronica ALEXA & Simona Valeria TOMA & Daniela Ancuţa SARPE, 2013. "Strategic Investment and Trade in an Oligopolistic Setting," Economics and Applied Informatics, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, issue 2, pages 5-10.
    19. Egger, Hartmut & Etzel, Daniel, 2014. "Union wage-setting and international trade with footloose capital," Regional Science and Urban Economics, Elsevier, vol. 48(C), pages 56-67.
    20. repec:eee:reecon:v:71:y:2017:i:3:p:564-587 is not listed on IDEAS
    21. Colacicco, Rudy, 2012. "The "Average" Within-Sector Firm Heterogeneity in General Oligopolistic Equilibrium," MPRA Paper 40212, University Library of Munich, Germany.
    22. Priya Ranjan, 2014. "Globalization, Jobs, and Welfare: The Roles of Social Protection and Redistribution," Working Papers 141507, University of California-Irvine, Department of Economics.
    23. Ranjan, Priya, 2016. "Globalization and risk averse workers: The roles of labor market and trade policies," Journal of International Economics, Elsevier, vol. 103(C), pages 64-79.

    More about this item

    Keywords

    General oligopolistic equilibrium; Unionized labor market; Trade liberalization; Income distribution;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:eecrev:v:56:y:2012:i:6:p:1119-1135. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/eer .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.