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Wage differentials: Trade Openness and Wage Bargaining

Author

Listed:
  • Gustavo Gonzaga

    (PUC - Rio)

  • Beatriz Muriel

    (Institute for Advanced Development Studies (INESAD))

  • Cristina Terra

    (Université de Cergy-Pontoise)

Abstract

We build a theoretical model that incorporates unionization in the labor market into a Heckscher-Ohlin-Samuelson (HOS) framework to investigate the impact of unionization on the Stolper-Samuelson Theorem. To capture the American economy case, we assume that unskilled labor in the manufactured goods sector is unionized, and that sector is intensive in skilled labor, and that trade liberalization increases the relative price of manufactured goods. In the HOS model, trade liberalization induces a reallocation of production towards the sector that uses intensively the country's most abundant factor. The resulting change in relative labor demand impacts wage bargaining in the unionized sector, which, in turn, has a dampening e ect on the Stolper- Samuelson e ect. Moreover, wages of unionized workers are even less responsive to trade liberalization. Through traditional mandated-wages regressions, we show that skilled-wage diferentials changes were less pronounced among more unionized sectors in the U.S. economy for the 1979-1990 period.

Suggested Citation

  • Gustavo Gonzaga & Beatriz Muriel & Cristina Terra, 2014. "Wage differentials: Trade Openness and Wage Bargaining," Development Research Working Paper Series 03/2014, Institute for Advanced Development Studies.
    • Handle: RePEc:adv:wpaper:201403
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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