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Union Wage Strategies and International Trade

Listed author(s):
  • Naylor, Robin

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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Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 480.

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Length: 36 pages
Date of creation: 1997
Handle: RePEc:wrk:warwec:480
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