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Does product market integration lead to decentralised wage bargaining institutions?

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  • Michele SANTONI

Abstract

This paper studies the effects of product market integration on wage-bargaining institutions. It first shows evidence of a negative correlation between the level of wage bargaining and proxy measures of integration, such as the degree of openness and import penetration, for a macro-panel of 17 OECD countries over the 1975-2000 period. It then develops a theoretical model of an import-competing unionised Cournot-Nash oligopoly. The model shows that a reduction in trade barriers, by lowering the sharable surplus between home firms and labour when the final goods are substitutes, gives unions incentives to choose more decentralised wage-bargaining institutions. This industry-level mechanism, however, works in the opposite direction with either complements or two-way trade and homogeneous goods. In these cases, cutting trade barriers raises the sharable surplus and encourages domestic wage-setters to choose more centralised institutions.

Suggested Citation

  • Michele SANTONI, 2009. "Does product market integration lead to decentralised wage bargaining institutions?," Departmental Working Papers 2009-043, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    • Handle: RePEc:mil:wpdepa:2009-043
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    More about this item

    Keywords

    Endogenous wage bargaining institutions; Unionised oligopolies; Trade integration;
    All these keywords.

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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