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Product Market Integration, Comparative Advantages and Labour Market Performance

  • Andersen, Torben M.

    ()

    (Aarhus University)

  • Skaksen, Jan Rose

    ()

    (Copenhagen Business School)

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
Date of revision:
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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