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Wage subsidies and international trade: When does policy coordination pay?

  • Sebastian Braun
  • Christian Spielmann

National labour market institutions interact across national boundaries when product markets are global. Labour market policies can thus entail spill-overs, a fact widely ignored in the academic literature. This paper studies the effects of wage subsidies in an international duopoly model with unionised labour markets. We document both positive and negative spill-over effects and discuss the benefits and costs from international policy coordination both for the case of symmetric and asymmetric labour market institutions. Our results suggest that institutional differences could sign responsible for the slow speed at which labour market policy coordination has progressed so far

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File URL: https://www.ifw-members.ifw-kiel.de/publications/wage-subsidies-and-international-trade-when-does-policy-coordination-pay/kwp-1599.pdf
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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1599.

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Length: 40 pages
Date of creation: Mar 2010
Date of revision:
Handle: RePEc:kie:kieliw:1599
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  1. Wolfgang Lechthaler & Mario Larch & Gabriel Felbermayr, 2009. "Unemployment in an Interdependent World," 2009 Meeting Papers 596, Society for Economic Dynamics.
  2. Moriconi, Simone & Sato, Yasuhiro, 2009. "International commodity taxation in the presence of unemployment," Journal of Public Economics, Elsevier, vol. 93(7-8), pages 939-949, August.
  3. Hervé Boulhol, 2008. "Unemployment and interactions between trade and labour market institutions," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00261478, HAL.
  4. Peter Fredriksson & Bertil Holmlund, 2003. "Optimal Unemployment Insurance Design: Time Limits, Monitoring, or Workfare?," CESifo Working Paper Series 1019, CESifo Group Munich.
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  7. Krueger, Alan B. & Mueller, Andreas, 2010. "Job search and unemployment insurance: New evidence from time use data," Journal of Public Economics, Elsevier, vol. 94(3-4), pages 298-307, April.
  8. James A. Brander & Barbara J. Spencer, 1983. "Trade Warfare: Tariffs and Cartels," NBER Working Papers 1193, National Bureau of Economic Research, Inc.
  9. Braun, Sebastian & Spielmann, Christian, 2012. "Wage subsidies and international trade: When does policy coordination pay?," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 6, pages 1-42.
  10. James Brander, 1980. "Intra-Industry Trade in Identical Commodities," Working Papers 380, Queen's University, Department of Economics.
  11. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February.
  12. Saint-Paul, Gilles, 2000. "The Political Economy of Labour Market Institutions," OUP Catalogue, Oxford University Press, number 9780198293323, March.
  13. Haufler, Andreas & Pflüger, Michael, 2007. "International oligopoly and the taxation of commerce with revenue-constrained governments," Munich Reprints in Economics 20424, University of Munich, Department of Economics.
  14. Orszag, J. Michael & Snower, Dennis J., 2003. "Designing employment subsidies," Labour Economics, Elsevier, vol. 10(5), pages 557-572, October.
  15. J Peter Neary, 2002. "Globalisation and Market Structure," Working Papers 200220, School Of Economics, University College Dublin.
  16. 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.
  17. 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.
  18. Elhanan Helpman & Oleg Itskhoki, 2010. "Labour Market Rigidities, Trade and Unemployment," Review of Economic Studies, Oxford University Press, vol. 77(3), pages 1100-1137.
  19. Andreas HaufLer & Guttorm Schjelderup & Frank Stähler, 2005. "Barriers to Trade and Imperfect Competition: The Choice of Commodity Tax Base," International Tax and Public Finance, Springer, vol. 12(3), pages 281-300, May.
  20. Martin Heidenreich & Gabriele Bischoff, 2008. "The Open Method of Co-ordination: A Way to the Europeanization of Social and Employment Policies?," Journal of Common Market Studies, Wiley Blackwell, vol. 46, pages 497-532, 06.
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