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Product Market Integration, Comparative Advantages and Labour Market Performance

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Listed author(s):
  • Andersen, Torben M.

    ()

    (Aarhus University)

  • Skaksen, Jan Rose

    ()

    (Rockwool Foundation Research Unit)

Abstract

In a two-country model with trade driven by comparative advantages, it is considered how imperfectly competitive labour markets are affected by lower frictions in international goods trade. Easier goods trading is equivalent to increased mobility of employment across countries and thus a change in the trade-off between wages and employment faced by wage setters. While the effects of product market integration on the trade-off between wages and employment in general is ambiguous, it is shown that product market integration works like a general improvement in productivity via the specialization it allows through trade. Unambiguously, real wages and employment and welfare improve upon reductions in trade frictions, and therefore workers are better off irrespective of whether the market power of unions is enhanced or muted.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 698.

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Length: 21 pages
Date of creation: Jan 2003
Publication status: published as "Labour Demand, Wage Mark-ups and Product Market Integration" in: Journal of Economics, 2007, 92 (2), 103-135
Handle: RePEc:iza:izadps:dp698
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Keywords: trade frictions; wage formation; employment; welfare gains;

Other versions of this item:

Find related papers by JEL classification:
  • F15 - International Economics - - Trade - - - Economic Integration
  • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
  • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General

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Cited by:

  1. Andersen, Torben M., 2005. "Product market integration, wage dispersion and unemployment," Labour Economics, Elsevier, vol. 12(3), pages 379-406, June.
  2. Torben M. Andersen, 2003. "Wage formation and European integration," European Economy - Economic Papers 2008 - 2015 188, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  3. Piekkola, Hannu & Snellman, Kenneth, . "Collective Bargaining and Wage Formation - Performance and Challenges," ETLA A, The Research Institute of the Finnish Economy, number 39.
  4. Andersen, Torben M & Sorensen, Allan, 2005. "Product Market Integration, Wages and Inequality," CEPR Discussion Papers 4963, C.E.P.R. Discussion Papers.
  5. Andersen, Torben M & Sorensen, Allan, 2003. "International Product Market Integration, Rents and Wage Formation," CEPR Discussion Papers 3995, C.E.P.R. Discussion Papers.

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