Price and Wage Setting in an Integrating Europe: Firm Level Evidence

National Bank of Belgium Working Paper No. 93

40 Pages Posted: 9 Oct 2010

See all articles by Filip Abraham

Filip Abraham

KU Leuven - Department of Economics

Jozef Konings

Catholic University of Leuven (KUL) - LICOS - Centrum voor Transitie-economie; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Stijn Vanormelingen

affiliation not provided to SSRN

Date Written: October 12, 2006

Abstract

Europe has witnessed the last decade an accelerated process of economic integration. Trade barriers were removed, the euro was introduced and ten new member states entered the European Union. Economic integration is likely to have an impact on both labor and product markets. Unlike most other papers, that focus on product and labor markets separately, we look at the link between globalization and product and labor market imperfections simultaneously. To this end, we rely on a rich panel of manufacturing firms in Belgium, a small open economy. We find that union bargaining power is higher in sectors characterized by high price cost margins. Moreover, ignoring imperfections on the labor market, leads to an underestimation of product market power. Concerning the influence of globalization, our main findings are that both price cost margins and union bargaining power are typically lower in sectors that are subject higher international competition. This result is especially true for competition from low wage countries.

Keywords: Mark-ups, Trade Unions, International Trade

JEL Classification: F16, J50, L13

Suggested Citation

Abraham, Filip and Konings, Jozef and Vanormelingen, Stijn, Price and Wage Setting in an Integrating Europe: Firm Level Evidence (October 12, 2006). National Bank of Belgium Working Paper No. 93, Available at SSRN: https://ssrn.com/abstract=1688966 or http://dx.doi.org/10.2139/ssrn.1688966

Filip Abraham (Contact Author)

KU Leuven - Department of Economics ( email )

Leuven, B-3000
Belgium

Jozef Konings

Catholic University of Leuven (KUL) - LICOS - Centrum voor Transitie-economie ( email )

Waaistraat 6 - box 3511
Leuven, 3000
Belgium
+32 16 326 589 (Phone)
+32 16 326 599 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Stijn Vanormelingen

affiliation not provided to SSRN ( email )

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