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Foreign Competition, Multinational Firms, and the Effects of One-Sided Wage Rigidity

  • Sebastian Braun

    ()

    (School of Business and Economics, Humboldt University of Berlin)

The paper studies the effects of a one-sided minimum wage in a two-country model of intra-industry trade, in which multinational firms arise endogenously. With positive levels of intra-industry trade the adverse employment and welfare effects of an asymmetric minimum wage are significantly larger than in a non-trading economy. Multinational firms generally mitigate the effect somewhat. Even though factor prices are not equalised across countries, a (binding) wage floor in one country will prop up wages in the other. The flexible wage country is insulated from shocks caused by factor accumulation in the rigid wage country, while an increase in the labour supply of the latter economy may have profound impacts on labour market outcomes in both countries.

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File URL: http://jeps.repec.org/papers/07-003.pdf
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Paper provided by JEPS in its series JEPS Working Papers with number 07-003.

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Length: 35 pages
Date of creation: May 2007
Date of revision:
Handle: RePEc:jep:wpaper:07003
Contact details of provider: Web page: http://jeps.repec.org/

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  1. Carl Davidson & Steven J. Matusz, 2004. "International Trade and Labor Markets: Theory, Evidence, and Policy Implications," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number itlm, June.
  2. Oslington, P., 2000. "Factor Market Linkages in a Global Economy," Economics Series Working Papers 9938, University of Oxford, Department of Economics.
  3. James Brander & Paul Krugman, 1980. "A "Reciprocal Dumping" Model of International Trade," Working Papers 405, Queen's University, Department of Economics.
  4. Kreickemeier, Udo & Nelson, Douglas, 2006. "Fair wages, unemployment and technological change in a global economy," Journal of International Economics, Elsevier, vol. 70(2), pages 451-469, December.
  5. Kenneth F. Scheve & Matthew J. Slaughter, 2001. "Globalization and the Perceptions of American Workers," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 109.
  6. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633078, June.
  7. Davis, Donald R, 1998. "Does European Unemployment Prop Up American Wages? National Labor Markets and Global Trade," American Economic Review, American Economic Association, vol. 88(3), pages 478-94, June.
  8. James R. Markusen & Anthony J. Venables, 1995. "Multinational Firms and The New Trade Theory," NBER Working Papers 5036, National Bureau of Economic Research, Inc.
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