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Product Market Integration, Comparative Advantages and Labour Market Performance

Author

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  • 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.

Suggested Citation

  • Andersen, Torben M. & Skaksen, Jan Rose, 2003. "Product Market Integration, Comparative Advantages and Labour Market Performance," IZA Discussion Papers 698, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp698
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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, June.
    4. Andersen, Torben M & Sorensen, Allan, 2005. "Product Market Integration, Wages and Inequality," CEPR Discussion Papers 4963, C.E.P.R. Discussion Papers.
    5. Di Maio, Michele, 2008. "Uncertainty, trade integration and the optimal level of protection in a Ricardian model with a continuum of goods," Structural Change and Economic Dynamics, Elsevier, vol. 19(4), pages 315-329, December.
    6. Andersen, Torben M & Sorensen, Allan, 2003. "International Product Market Integration, Rents and Wage Formation," CEPR Discussion Papers 3995, C.E.P.R. Discussion Papers.
    7. Carlo Devillanova & Michele Maio & Pietro Vertova, 2010. "Labour mobility and the redistributive effects of trade integration," Journal of Economics, Springer, vol. 100(2), pages 95-115, June.

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    More about this item

    Keywords

    trade frictions; wage formation; employment; welfare gains;
    All these keywords.

    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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