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Product and Labor Market Deregulation in Unionized Oligopoly with Asymmetric Countries

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.uib.no/filearchive/wp11-11_1.pdf
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Paper provided by University of Bergen, Department of Economics in its series Working Papers in Economics with number 11/11.

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Length: 30 pages
Date of creation: 05 Oct 2011
Date of revision:
Handle: RePEc:hhs:bergec:2011_011
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. Spector, David, 2004. "Competition and the capital-labor conflict," European Economic Review, Elsevier, vol. 48(1), pages 25-38, February.
  2. 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.
  3. Boulhol, Herv, 2009. "Do capital market and trade liberalization trigger labor market deregulation?," Journal of International Economics, Elsevier, vol. 77(2), pages 223-233, April.
  4. 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.
  5. 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.
  6. Oslington, Paul, 2002. "Factor market linkages in a global economy," Economics Letters, Elsevier, vol. 76(1), pages 85-93, June.
  7. J.Peter Neary, 2003. "Globalisation and Market Structure," DNB Staff Reports (discontinued) 100, Netherlands Central Bank.
  8. Oswald, Andrew J, 1985. " The Economic Theory of Trade Unions: An Introductory Survey," Scandinavian Journal of Economics, Wiley Blackwell, vol. 87(2), pages 160-93.
  9. Rachel Griffith & Rupert Harrison & Gareth Macartney, 2006. "Product market reforms, labour market institutions and unemployment," IFS Working Papers W06/06, Institute for Fiscal Studies.
  10. Fiori, Giuseppe & Nicoletti, Giuseppe & Scarpetta, Stefano & Schiantarelli, Fabio, 2007. "Employment Outcomes and the Interaction Between Product and Labor Market Deregulation: Are They Substitutes or Complements?," IZA Discussion Papers 2770, Institute for the Study of Labor (IZA).
  11. Koeniger, Winfried & Prat, Julien, 2006. "Employment Protection, Product Market Regulation and Firm Selection," IZA Discussion Papers 1960, Institute for the Study of Labor (IZA).
  12. Bruno Amable & Donatella Gatti, 2004. "Product market competition, job security, and aggregate employment," Oxford Economic Papers, Oxford University Press, vol. 56(4), pages 667-686, October.
  13. Ebell, Monique & Haefke, Christian, 2006. "Product Market Regulation and Endogenous Union Formation," IZA Discussion Papers 2222, Institute for the Study of Labor (IZA).
  14. Brecher, Richard A, 1974. "Minimum Wage Rates and the Pure Theory of International Trade," The Quarterly Journal of Economics, MIT Press, vol. 88(1), pages 98-116, February.
  15. Brander, James A., 1981. "Intra-industry trade in identical commodities," Journal of International Economics, Elsevier, vol. 11(1), pages 1-14, February.
  16. 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.
  17. 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, 08.
  18. Noel Gaston & Douglas Nelson, 2004. "Structural Change and the Labor-market Effects of Globalization," Review of International Economics, Wiley Blackwell, vol. 12(5), pages 769-792, November.
  19. Kreickemeier, Udo & Nelson, Douglas, 2006. "Fair wages, unemployment and technological change in a global economy," Journal of International Economics, Elsevier, vol. 70(2), pages 451-469, December.
  20. Johnson, George E, 1985. " The Economic Theory of Trade Unions-An Introductory Survey: Comment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 87(2), pages 194-96.
  21. Booth, Alison L, 1984. "A Public Choice Model of Trade Union Behaviour and Membership," Economic Journal, Royal Economic Society, vol. 94(376), pages 883-98, December.
  22. Danielle Venn, 2009. "Legislation, Collective Bargaining and Enforcement: Updating the OECD Employment Protection Indicators," OECD Social, Employment and Migration Working Papers 89, OECD Publishing.
  23. Davis, Donald R, 1998. "Does European Unemployment Prop Up American Wages? National Labor Markets and Global Trade," American Economic Review, American Economic Association, vol. 88(3), pages 478-94, June.
  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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