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International trade, union wage premia, and welfare in general equilibrium

  • Kreickemeier, Udo
  • Meland, Frode

We study how two distinct forms of globalisation, trade cost reductions and opening up of trade in previously shielded sectors, affect sector-specific wages, employment levels and aggregate welfare in a two-country model of general oligopolistic equilibrium (GOLE) with partly unionised labour markets. We find that both forms of globalisation increase union coverage, and they also lead to a lower union wage premium in shielded sectors. In contrast, the union wage premium in open sectors and aggregate welfare are affected differently by the two types of globalisation. Trade cost reductions in open sectors always lead to higher union wage premia and to lower aggregate welfare, while an increased number of open sectors lowers the union wage premium, and it may also increase welfare.

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Paper provided by University of Tuebingen, Faculty of Economics and Social Sciences in its series University of Tuebingen Working Papers in Economics and Finance with number 5.

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Date of creation: 2011
Date of revision:
Handle: RePEc:zbw:tuewef:5
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  1. Paulo Bastos & Udo Kreickemeier & Peter Wright, . "Oligopoly, open shop unions and trade liberalisation," Discussion Papers 07/30, University of Nottingham, GEP.
  2. Paulo Bastos & Odd Rune Straume, 2010. "Globalization, Product Differentiation and Wage Inequality," IDB Publications (Working Papers) 6867, Inter-American Development Bank.
  3. Brander, James & Krugman, Paul, 1983. "A 'reciprocal dumping' model of international trade," Journal of International Economics, Elsevier, vol. 15(3-4), pages 313-321, November.
  4. Kjell Erik Lommerud & Frode Meland & Lars Sørgard, 2002. "Unionized Oligopoly, Trade Liberalization and Location Choice," CESifo Working Paper Series 777, CESifo Group Munich.
  5. Munch, Jakob Roland & Skaksen, Jan Rose, 2002. " Product Market Integration and Wages in Unionized Countries," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(2), pages 289-99, June.
  6. Falvey, Rod & Kreickemeier, Udo, 2005. "Globalisation and factor returns in competitive markets," Journal of International Economics, Elsevier, vol. 66(1), pages 233-248, May.
  7. J. Peter Neary, 2007. "Cross-Border Mergers as Instruments of Comparative Advantage," Review of Economic Studies, Oxford University Press, vol. 74(4), pages 1229-1257.
  8. Huizinga, H.P., 1993. "International market integration and union wage bargaining," Other publications TiSEM 567712dd-8f03-40d8-8428-c, Tilburg University, School of Economics and Management.
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  10. Steinar Holden, 2003. "Wage-setting under Different Monetary Regimes," Economica, London School of Economics and Political Science, vol. 70(278), pages 251-265, 05.
  11. Lommerud, Kjell Erik & Meland, Frode & Rune Straume, Odd, 2006. "Globalisation and union opposition to technological change," Journal of International Economics, Elsevier, vol. 68(1), pages 1-23, January.
  12. Lommerud, Kjell Erik & Straume, Odd Rune & Sørgard, Lars, 2003. "National versus international mergers in unionised oligopoly," Working Papers in Economics 12/03, University of Bergen, Department of Economics.
  13. Corden, W Max & Neary, J Peter, 1982. "Booming Sector and De-Industrialisation in a Small Open Economy," Economic Journal, Royal Economic Society, vol. 92(368), pages 825-48, December.
  14. Naylor, Robin, 1999. "Union Wage Strategies and International Trade," Economic Journal, Royal Economic Society, vol. 109(452), pages 102-25, January.
  15. Mezzetti, C. & Dinopoulos, E., 1989. "Domestic Unionization And Import Competition," Papers 337, California Davis - Institute of Governmental Affairs.
  16. Vartiainen, Juhana, 2002. " Relative Prices in Monetary Union and Floating," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(2), pages 277-87, June.
  17. Paulo Bastos & Udo Kreickemeier, . "Unions, Competition and International Trade in General Equilibrium," Discussion Papers 08/28, University of Nottingham, GEP.
  18. Neary, J Peter, 1987. "Determinants of the Equilibrium Real Exchange Rate," CEPR Discussion Papers 209, C.E.P.R. Discussion Papers.
  19. Rasmussen, Bo Sandemann, 1992. " Union Cooperation and Nontraded Goods in General Equilibrium," Scandinavian Journal of Economics, Wiley Blackwell, vol. 94(4), pages 561-79.
  20. Moene, K.O. & Wallerstein, M., 1995. "How Social Democracy Worked: Labour Market Institutions," Memorandum 10/1995, Oslo University, Department of Economics.
  21. Frode Meland, 2006. "A Union-bashing Model of Inflation Targeting," Scandinavian Journal of Economics, Wiley Blackwell, vol. 108(3), pages 419-432, October.
  22. Naylor, Robin, 1998. "International trade and economic integration when labour markets are generally unionised," European Economic Review, Elsevier, vol. 42(7), pages 1251-1267, July.
  23. Brander, James A. & Spencer, Barbara J., 1988. "Unionized oligopoly and international trade policy," Journal of International Economics, Elsevier, vol. 24(3-4), pages 217-234, May.
  24. Straume, Odd Rune, 2003. "International mergers and trade liberalisation: implications for unionised labour," International Journal of Industrial Organization, Elsevier, vol. 21(5), pages 717-735, May.
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