Union Wage Strategies and International Trade
In this paper, we analyze the relationship between wage outcomes and the nature of international trade and economic integration when labour markets are unionized and a homogeneous product market is characterized by intra-industry trade. We characterize the full set of possible trade regimes for different combinations of wages and derive unions' wage reaction functions. We show that a unions' choice between a high and a low-wage strategy will depend on the value of the trade costs. We find that: (i) compared to a non-union setting, unions reduce the prohibitive trade cost and that (ii) this rules out trade in that region of trade costs over which, in the non-union model. welfare falls as trade costs fall, (iii) in any trade equilibrium, falling trade costs lead monopoly unions to set higher wages, (iv) there is a range of trade costs for which equilibrium is non-existent and (v) the characterization of the union wage-setting as a Prisioners' Dilemma and hence the incentives for international union coordination of wage demands, depend upon the extent of trade costs.
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