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Union wage demands with footloose firms


  • Damiaan Persyn


This paper analyses the wage demands of a sector-level monopoly union facing internationally mobile firms. A simple two-country economic geography model is used to describe how firms relocate in function of international di erences in production costs and market size. The union sets wages in function of the firm level labour demand elasticity and the responsiveness of firms to relocate internationally. If countries are suffciently symmetric lower foreign wages and lower trade costs necessarily lead to lower union wage demands. With asymmetric countries these intuitive properties do not always hold. But even for symmetric countries it holds that small increases in market size or trade costs makes union wages more sensitive to the foreign wage level.

Suggested Citation

  • Damiaan Persyn, 2009. "Union wage demands with footloose firms," LICOS Discussion Papers 22809, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  • Handle: RePEc:lic:licosd:22809

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    References listed on IDEAS

    1. Jakob Roland Munch, 2003. "The Location of Firms in Unionized Countries," Scandinavian Journal of Economics, Wiley Blackwell, vol. 105(1), pages 49-72, March.
    2. Mezzetti, Claudio & Dinopoulos, Elias, 1991. "Domestic unionization and import competition," Journal of International Economics, Elsevier, vol. 31(1-2), pages 79-100, August.
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    5. Addison, John T & Chilton, John B, 1998. "Self-Enforcing Union Contracts: Efficient Investment and Employment," The Journal of Business, University of Chicago Press, vol. 71(3), pages 349-369, July.
    6. Naylor, Robin, 1999. "Union Wage Strategies and International Trade," Economic Journal, Royal Economic Society, vol. 109(452), pages 102-125, January.
    7. Ludema, Rodney D. & Wooton, Ian, 2000. "Economic geography and the fiscal effects of regional integration," Journal of International Economics, Elsevier, vol. 52(2), pages 331-357, December.
    8. Baldwin, Richard E. & Martin, Philippe, 2004. "Agglomeration and regional growth," Handbook of Regional and Urban Economics,in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 60, pages 2671-2711 Elsevier.
    9. Picard, P. M. & Toulemonde, E., 2003. "Regional asymmetries: economies of agglomeration versus unionized labor markets," Regional Science and Urban Economics, Elsevier, vol. 33(2), pages 223-249, March.
    10. Oswald, Andrew J, 1985. " The Economic Theory of Trade Unions: An Introductory Survey," Scandinavian Journal of Economics, Wiley Blackwell, vol. 87(2), pages 160-193.
    11. Maria Paz Espinosa & Changyong Rhee, 1989. "Efficient Wage Bargaining as a Repeated Game," The Quarterly Journal of Economics, Oxford University Press, vol. 104(3), pages 565-588.
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    Cited by:

    1. Persyn, Damiaan, 2008. "Trade as a Wage Disciplining Device," IZA Discussion Papers 3786, Institute for the Study of Labor (IZA).

    More about this item


    Unions; globalisation; economic geography;

    JEL classification:

    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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