Trade as a Wage Disciplining Device
We estimate how trade openness affects the relationship between wages, labour productivity and foreign wages using sector-level time series for several EU member states. In some countries wages became less responsive to foreign wages as trade costs declined. We show this counter-intuitive result is as expected when wages are set by a monopoly union with a preference for wages relative to employment. Trade liberalisation then leads to more wage discipline by forcing unions to set wages more in line with labour productivity. Foreign wages simultaneously become less relevant. Our results call to rethink how trade liberalisation is affecting unionized labour markets, and offer a possible explanation for the mixed evidence found by some tests for international factor price convergence.
|Date of creation:||Oct 2008|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org
|Order Information:|| Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gaston, Noel, 2002. "The Effects of Globalisation on Unions and the Nature of Collective Bargaining," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 17, pages 377-396.
- Nelson C. Mark & Donggyu Sul, 2002.
"Cointegration Vector Estimation by Panel DOLS and Long-Run Money Demand,"
NBER Technical Working Papers
0287, National Bureau of Economic Research, Inc.
- Nelson C. Mark & Donggyu Sul, 2003. "Cointegration Vector Estimation by Panel DOLS and Long-run Money Demand," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(5), pages 655-680, December.
- Marcel P. Timmer & Mary O’Mahony & Bart van Ark, 2007. "EU KLEMS Growth and Productivity Accounts: An Overview," International Productivity Monitor, Centre for the Study of Living Standards, vol. 14, pages 71-85, Spring.
- Naylor, Robin, 1997.
"Union Wage Strategies and International Trade,"
The Warwick Economics Research Paper Series (TWERPS)
480, University of Warwick, Department of Economics.
- Torben M. Andersen & Niels Haldrup & Jan Rose Sørensen, 2000. "Labour market implications of EU product market integration," Economic Policy, CEPR;CES;MSH, vol. 15(30), pages 105-134, 04.
- Bernard, Andrew B & Durlauf, Steven N, 1995.
"Convergence in International Output,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 10(2), pages 97-108, April-Jun.
- Dennis Novy, 2013.
"Gravity redux: measuring international trade costs with panel data,"
LSE Research Online Documents on Economics
59308, London School of Economics and Political Science, LSE Library.
- Dennis Novy, 2013. "Gravity Redux: Measuring International Trade Costs With Panel Data," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 101-121, 01.
- Dennis Novy, 2012. "Gravity Redux: Measuring International Trade Costs with Panel Data," CEP Discussion Papers dp1114, Centre for Economic Performance, LSE.
- Dennis Novy, 2011. "Gravity Redux: Measuring International Trade Costs with Panel Data," CESifo Working Paper Series 3616, CESifo Group Munich.
- Novy, Dennis, 2008. "Gravity Redux : Measuring International Trade Costs with Panel Data," The Warwick Economics Research Paper Series (TWERPS) 861, University of Warwick, Department of Economics.
- Boulhol, Hervé & Dobbelaere, Sabien & Maioli, Sara, 2006.
"Imports as Product and Labor Market Discipline,"
IZA Discussion Papers
2178, Institute for the Study of Labor (IZA).
- H. Boulhol & S. Dobbelaere & S. Maioli, 2007. "Imports as product and labour market discipline," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 07/479, Ghent University, Faculty of Economics and Business Administration.
- Huizinga, Harry, 1993.
" International Market Integration and Union Wage Bargaining,"
Scandinavian Journal of Economics,
Wiley Blackwell, vol. 95(2), pages 249-55.
- 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.
- Robert Feenstra & Gordon Hanson, 2001. "Global Production Sharing and Rising Inequality: A Survey of Trade and Wages," NBER Working Papers 8372, National Bureau of Economic Research, Inc.
- Mezzetti, C. & Dinopoulos, E., 1989.
"Domestic Unionization And Import Competition,"
337, California Davis - Institute of Governmental Affairs.
- Head, Keith & Mayer, Thierry, 2003.
"The Empirics of Agglomeration and Trade,"
CEPR Discussion Papers
3985, C.E.P.R. Discussion Papers.
- Alfred Tovias, 1982. "Testing Factor Price Equalization in the EEC," Journal of Common Market Studies, Wiley Blackwell, vol. 20(4), pages 375-388, 06.
- Fontagne, Lionel & Mirza, Daniel, 2007.
"International trade and rent sharing among developed and developing countries,"
Elsevier, vol. 24(3), pages 523-558, May.
- Lionel Fontagné & Daniel Mirza, 2007. "International trade and rent sharing among developed and developing countries," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00155812, HAL.
- Damiaan Persyn, 2009.
"Union wage demands with footloose firms,"
Vives discussion paper series
3, Katholieke Universiteit Leuven, Faculteit Economie en Bedrijfswetenschappen, Vives.
- David A. Macpherson & James B. Stewart, 1990. "The effect of international competition on union and nonunion wages," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 43(4), pages 434-446, April.
- Hans J. Gremmen, 1985. "Testing The Factor Price Equalization Theorem in the EC: An Alternative Approach," Journal of Common Market Studies, Wiley Blackwell, vol. 23(3), pages 277-286, 03.
- Mayer, Thierry & Paillacar, Rodrigo & Zignago, Soledad, 2008. "TradeProd. The CEPII Trade, Production and Bilateral Protection Database: Explanatory Notes," MPRA Paper 26477, University Library of Munich, Germany.
- 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.
- Pehkonen, Jaakko, 1990. " Trade Union Objectives and the Cyclical Variability of Wages and Employment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 92(4), pages 573-86.
- Hoekman & Bernard & Winters, L. Alan, 2005.
"Trade and employment : stylized facts and research findings,"
Policy Research Working Paper Series
3676, The World Bank.
- Bernard Hoekman & Alan L. Winters, 2005. "Trade and Employment: Stylized Facts and Research Findings," Working Papers 7, United Nations, Department of Economics and Social Affairs.
- Helge Berger & Frank Westermann, 2001.
"Factor price equalization? The cointegration approach revisited,"
Review of World Economics (Weltwirtschaftliches Archiv),
Springer, vol. 137(3), pages 525-536, September.
- Helge Berger & Frank Westermann, 2001. "Factor Price Equalization? The Cointegration Approach Revisited," CESifo Working Paper Series 471, CESifo Group Munich.
- Martin, Philippe & Rogers, Carol Ann, 1995.
"Industrial location and public infrastructure,"
Journal of International Economics,
Elsevier, vol. 39(3-4), pages 335-351, November.
- Damiaan Persyn & Joakim Westerlund, 2008. "Error-correction–based cointegration tests for panel data," Stata Journal, StataCorp LP, vol. 8(2), pages 232-241, June.
- Banerjee, Anindya & Dolado, Juan J. & Galbraith, John W. & Hendry, David, 1993. "Co-integration, Error Correction, and the Econometric Analysis of Non-Stationary Data," OUP Catalogue, Oxford University Press, number 9780198288107.
- Todd Burgman & John Geppert, 1993. "Factor price equalization: a cointegration approach," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 129(3), pages 472-487, September.
- Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002.
"Unit root tests in panel data: asymptotic and finite-sample properties,"
Journal of Econometrics,
Elsevier, vol. 108(1), pages 1-24, May.
- Tom Doan, . "LEVINLIN: RATS procedure to perform Levin-Lin-Chu test for unit roots in panel data," Statistical Software Components RTS00242, Boston College Department of Economics.
- John M. Abowd & Thomas Lemieux, 1990.
"The Effects of International Competiton on Collective Bargaining Outcomes: A Comparison of the United States and Canada,"
NBER Working Papers
3352, National Bureau of Economic Research, Inc.
- John M. Abowd & Thomas Lemieux, 1991. "The Effects of International Competition on Collective Bargaining Outcomes: A Comparison of the United States and Canada," NBER Chapters, in: Immigration, Trade, and the Labor Market, pages 343-367 National Bureau of Economic Research, Inc.
- Ben-David, Dan, 1993. "Equalizing Exchange: Trade Liberalization and Income Convergence," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 653-79, August.
- Michel Dumont & Glenn Rayp & Peter Willemé, 2006. "Does internationalization affect union bargaining power? An empirical study for five EU countries," Oxford Economic Papers, Oxford University Press, vol. 58(1), pages 77-102, January.
- Kao, Chihwa, 1999. "Spurious regression and residual-based tests for cointegration in panel data," Journal of Econometrics, Elsevier, vol. 90(1), pages 1-44, May.
- Don Webber & Paul White, 2003. "Regional Factor Price Convergence Across Four Major European Countries," Regional Studies, Taylor & Francis Journals, vol. 37(8), pages 773-782.
- Revenga, Ana L, 1992. "Exporting Jobs? The Impact of Import Competition on Employment and Wages in U.S. Manufacturing," The Quarterly Journal of Economics, MIT Press, vol. 107(1), pages 255-84, February.
When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp3786. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak)
If references are entirely missing, you can add them using this form.