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Do capital market and trade liberalization trigger labor market deregulation?

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Abstract

Previous analyses showed that product market deregulation often precedes labor market (LM) reforms. This paper introduces LM imperfections within an economic geography framework, the level of optimal LM regulation being based on each country's social preferences. Due to capital mobility, opening the economy to a country with a deregulated LM puts pressure on LM institutions. As the fall in trade costs increases the intensity of the agglomeration force, LM regulation loses in efficiency. The threat of relocation drives changes in LM policy, with suggests that the effect of liberalization might be found primarily in the weakening of employment protection, resulting in minimal actual relocations

Suggested Citation

  • Hervé Boulhol, 2006. "Do capital market and trade liberalization trigger labor market deregulation?," Cahiers de la Maison des Sciences Economiques bla06062, Université Panthéon-Sorbonne (Paris 1).
    • Handle: RePEc:mse:wpsorb:bla06062
    DOI: 10.1016/j.jinteco.2008.12.001
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    More about this item

    Keywords

    Deregulation; wage bargaining; capital mobility; agglomeration; relocations;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets

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