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Product Market Integration, Comparative Advantages and Labour Market Performance

Author Info

  • Andersen, Torben M.

    ()

    (Aarhus University)

  • Skaksen, Jan Rose

    ()

    (Copenhagen Business School)

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
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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Keywords: trade frictions; wage formation; employment; welfare gains;

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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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  1. Huizinga, Harry, 1993. " International Market Integration and Union Wage Bargaining," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(2), pages 249-55.
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  17. 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.
  18. 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.
  19. R. Dornbusch & S. Fischer & P. A. Samuelson, 1976. "Comparative Advantage, Trade and Payments in a Ricardian Model With a Continuum of Goods," Working papers 178, Massachusetts Institute of Technology (MIT), Department of Economics.
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  22. M. Andersen, Torben & Rose S rense, Jan, 2000. "Product Market Integration and Wage Formation," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 15, pages 281-293.
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Cited by:

  1. Andersen, Torben M & Sorensen, Allan, 2005. "Product Market Integration, Wages and Inequality," CEPR Discussion Papers 4963, C.E.P.R. Discussion Papers.
  2. Torben M. Andersen, 2003. "Wage formation and European integration," European Economy - Economic Papers 188, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  3. Andersen, Torben M & Sorensen, Allan, 2003. "International Product Market Integration, Rents and Wage Formation," CEPR Discussion Papers 3995, C.E.P.R. Discussion Papers.
  4. Andersen, Torben M., 2005. "Product market integration, wage dispersion and unemployment," Labour Economics, Elsevier, vol. 12(3), pages 379-406, June.

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