International Trade, Union Wage Premia, and Welfare in General Equilibrium
University of Tuebingen; CESifo (Center for Economic Studies and Ifo Institute)
University of Bergen - Department of Economics
March 31, 2011
CESifo Working Paper Series No. 3407
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.
Number of Pages in PDF File: 26
Keywords: globalisation, unions, non-traded goods, general oligopolistic equilibrium
JEL Classification: F120, F150, F160
Date posted: April 8, 2011
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