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Product and Labor Market Deregulation in Unionized Oligopoly with Asymmetric Countries

  • Hartmut Egger
  • Frode Meland

This paper sets up a general oligopolistic equilibrium trade model for two integrated countries that are similar in all respects except of the prevailing labor market institutions. In one country, the labor market is perfectly competitive, while in the other country labor unions are active in a subset of industries. The differences in labor market institutions are a source of comparative advantage, which crucially impact inter-industry trade and welfare in the open economy. In this setting, we study the trade and welfare implications of labor market deregulation and compare these implications with the consequences of product market deregulation. Thereby, we take into account that labor market reforms are subject to national policy decisions and thus associated with unilateral intervention, while product market deregulation is determined at an international – for instance European – level and thus associated with coordinated intervention in both economies. As a key result, we find that both forms of policy intervention generate a conflict of interest between the two trading partners and that welfare losses materialize for the country with the competitive labor market regime whenever global gains are realized.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2011/wp-cesifo-2011-10/cesifo1_wp3611.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3611.

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Date of creation: 2011
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Handle: RePEc:ces:ceswps:_3611
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  13. Giuseppe Fiori & Giuseppe Nicoletti & Stefano Scarpetta & Fabio Schiantarelli, 2007. "Employment Outcomes and the Interaction Between Product and Labor Market Deregulation: Are They Substitutes or Complements?," Boston College Working Papers in Economics 663, Boston College Department of Economics, revised 08 Aug 2008.
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  24. Jürgen Meckl, 2006. "Does European Unemployment Prop Up American Wages? National Labor Markets and Global Trade: Comment," American Economic Review, American Economic Association, vol. 96(5), pages 1924-1930, December.
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