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Trade as a Wage Disciplining Device

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Listed author(s):
  • Persyn, Damiaan

    ()

    (KU Leuven)

Abstract

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.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3786.

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Length: 28 pages
Date of creation: Oct 2008
Handle: RePEc:iza:izadps:dp3786
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Keywords: unions; globalisation; economic geography; factor price equalisation;

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Find related papers by JEL classification:
  • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
  • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
  • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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Cited by:

  1. Martin Bijsterbosch & Marcin Kolasa, 2010. "FDI and productivity convergence in Central and Eastern Europe: an industry-level investigation," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 145(4), pages 689-712, January.
  2. Éva Polgár & Julia Wörz, 2010. "No risk and some fun? Trade and wages in the enlarged European Union," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 37(2), pages 127-163, May.
  3. Eva Katalin Polgar & Julia Woerz, 2011. "Trade With Central and Eastern Europe: Is It Really a Threat to Wages in the West?," DANUBE: Law and Economics Review, European Association Comenius - EACO, issue 1, pages 1-31, March.
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