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International Trade, Union Wage Premia,and Welfare in General Equilibrium

We study how two distinct forms of globalisation, trade cost reductions and opening up of trade in previously shielded sectors, affect sector-specific wages, employment levels and aggregate welfare in a two-country model of general oligopolistic equilibrium (GOLE) with partly unionised labour markets. We find that both forms of globalisation increase union coverage, and they also lead to a lower union wage premium in shielded sectors. In contrast, wage premium in open sectors and aggregate welfare are affected differently by the two types of globalisation. Trade cost reductions in open sectors always lead to higher union wage premia and to lower aggregate welfare, while an increased number of open sectors lowers the union wage premium, and it may also increase welfare.

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File URL: http://www.uib.no/filearchive/wp04.11.pdf
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Paper provided by University of Bergen, Department of Economics in its series Working Papers in Economics with number 04/11.

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Length: 26 pages
Date of creation: 25 Mar 2011
Date of revision:
Handle: RePEc:hhs:bergec:2011_004
Contact details of provider: Postal: Institutt for økonomi, Universitetet i Bergen, Postboks 7802, 5020 Bergen, Norway
Phone: (+47)55589200
Fax: (+47)55589210
Web page: http://www.uib.no/econ/en
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  1. Lommerud, Kjell Erik & Sørgard, Lars & Straume, Odd Rune, 2003. "National versus International Mergers in Unionised Oligopoly," CEPR Discussion Papers 4040, C.E.P.R. Discussion Papers.
  2. Steinar Holden, 2003. "Wage-setting under Different Monetary Regimes," Economica, London School of Economics and Political Science, vol. 70(278), pages 251-265, 05.
  3. Paulo Bastos & Odd Rune Straume, 2010. "Globalization, product differentiation and wage inequality," NIPE Working Papers 8/2010, NIPE - Universidade do Minho.
  4. James Brander & Paul Krugman, 1982. "A 'Reciprocal Dumping' Model of International Trade," Working Papers 513, Queen's University, Department of Economics.
  5. Lommerud, Kjell Erik & Meland, Frode & Sørgard, Lars, 2001. "Unionized Oligopoly, Trade Liberalization and Location Choice," CEPR Discussion Papers 2990, C.E.P.R. Discussion Papers.
  6. Mezzetti, C. & Dinopoulos, E., 1989. "Domestic Unionization And Import Competition," Papers 337, California Davis - Institute of Governmental Affairs.
  7. Lommerud, Kjell Erik & Meland, Frode & Straume, Odd Rune, 2005. "Globalisation and union opposition to technological change," Working Papers in Economics 01/05, University of Bergen, Department of Economics.
  8. Brander, James A. & Spencer, Barbara J., 1988. "Unionized oligopoly and international trade policy," Journal of International Economics, Elsevier, vol. 24(3-4), pages 217-234, May.
  9. Falvey, Rod & Kreickemeier, Udo, 2005. "Globalisation and factor returns in competitive markets," Journal of International Economics, Elsevier, vol. 66(1), pages 233-248, May.
  10. Neary, Peter, 1988. "Determinants of the Equilibrium Real Exchange Rate," American Economic Review, American Economic Association, vol. 78(1), pages 210-15, March.
  11. repec:cup:cbooks:9780521336017 is not listed on IDEAS
  12. Naylor, Robin, 1999. "Union Wage Strategies and International Trade," Economic Journal, Royal Economic Society, vol. 109(452), pages 102-25, January.
  13. Vartiainen, Juhana, 2002. " Relative Prices in Monetary Union and Floating," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(2), pages 277-87, June.
  14. Bastos, Paulo & Kreickemeier, Udo & Wright, Peter, 2009. "Oligopoly, open shop unions and trade liberalisation," International Journal of Industrial Organization, Elsevier, vol. 27(6), pages 679-686, November.
  15. Neary, J. Peter, 2004. "Cross-Border Mergers as Instruments of Comparative Advantage," Center for European, Governance and Economic Development Research Discussion Papers 34, University of Goettingen, Department of Economics.
  16. Moene, K.O. & Wallerstein, M., 1995. "How Social Democracy Worked: Labour Market Institutions," Memorandum 10/1995, Oslo University, Department of Economics.
  17. 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.
  18. Rasmussen, Bo Sandemann, 1992. " Union Cooperation and Nontraded Goods in General Equilibrium," Scandinavian Journal of Economics, Wiley Blackwell, vol. 94(4), pages 561-79.
  19. Huizinga, H.P., 1993. "International market integration and union wage bargaining," Other publications TiSEM 567712dd-8f03-40d8-8428-c, Tilburg University, School of Economics and Management.
  20. Munch, Jakob Roland & Skaksen, Jan Rose, 2002. " Product Market Integration and Wages in Unionized Countries," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(2), pages 289-99, June.
  21. Bastos, Paulo & Kreickemeier, Udo, 2009. "Unions, competition and international trade in general equilibrium," Journal of International Economics, Elsevier, vol. 79(2), pages 238-247, November.
  22. Corden, W Max & Neary, J Peter, 1982. "Booming Sector and De-Industrialisation in a Small Open Economy," Economic Journal, Royal Economic Society, vol. 92(368), pages 825-48, December.
  23. Straume, Odd Rune, 2003. "International mergers and trade liberalisation: implications for unionised labour," International Journal of Industrial Organization, Elsevier, vol. 21(5), pages 717-735, May.
  24. Frode Meland, 2006. "A Union-bashing Model of Inflation Targeting," Scandinavian Journal of Economics, Wiley Blackwell, vol. 108(3), pages 419-432, October.
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