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Labor Unions, Globalization, and Mercantilism

  • Wolf-Heimo Grieben
  • Fuat Sener

We analyze the growth and welfare effects of globalization in a dynamic Schumpeterian North-South product-cycle model. Economic growth is driven by R&D activities of Northern entrepreneurs. Top Northern production technologies are imitated by the South. In the North, there is wage bargaining between a labor union and firms, and a minimum wage rate exists. Unilateral Northern trade liberalization reduces the rate of innovation, increases Northern unemployment, and reduces both Northern and Southern per-capita welfare. The effects are reversed in the case of unilateral Southern trade liberalization. Hence, wage bargaining above a given minimum wage promotes mercantilist behavior of developed countries.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2889.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2889
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