Differences in the degree of unionization as a source of comparative advantage in open economies

Abstract

This paper considers two integrated countries that differ only in their labour markets: one country hosts unions, whereas the other one pays competitive wages. These institutional differences are a source of comparative advantage, which crucially impact inter-industry trade and welfare in the open economy. In this setting, deunionization exerts opposing welfare effects in the two economies. Increasing product market competition is beneficial for the unionized country and detrimental for its trading partner. Finally, we conduct an empirical analysis that provides strong support for the main hypotheses of our theoretical model.Résumé. Différences dans le degré de syndicalisation en tant que source d'avantage comparatif dans leséconomies ouvertes. Ce texte examine le cas de deuxéconomies nationales intégrées qui diffèrent seulement par leurs marchés du travail : l'une a des syndicats, alors que l'autre a des salaires qui résultent de la concurrence. Ces différences institutionnelles sont une source d'avantage comparatif qui a un impact sur le commerce interindustriel et sur le niveau de bien-être dans uneéconomie ouverte. Dans ce contexte, la désyndicalisation exerce des effets de bien-être opposés dans les deuxéconomies. Une concurrence accrue dans le marché du produit est bénéfique pour le pays syndiqué, et coûteuse pour son partenaire commercial. Une analyse empirique supporte les principaux résultats du modèle théorique.

Environment, imperfect competition, and trade: Insights for optimal policy in general equilibrium

“…14 International duopoly is adopted by other GOLE studies whenever the focus is not on competition policy (e.g., Bastos and Straume, 2012, Neary and Tharakan, 2012, Egger et al, 2015. Duopoly is also commonly assumed in the literature of environmental economics.…”

Trade Exposure and the Decline in Collective Bargaining: Evidence from Germany

“…A large part of this literature analyzes the role of domestic institutions as a source of comparative advantage, where some papers have indeed focused on labor market institutions. Egger et al (2015b) show that differences in unionization rates across countries can be a source of comparative advantage and, therefore, shape trade patterns. Other labor market institutions that have been considered in this context are worker monitoring capabilities (Costinot, 2009), labor market protection regulations (Tang, 2012), and overall labor market flexibility (Cuñat and Melitz, 2012).…”

Labour market characteristics and surviving import shocks

“…There is also a set of papers dealing with the interaction between unions and globalisation, of which my paper also contributes to. From a theoretical perspective, Egger, Meland, and Schmerer () find that unions can act as a source of comparative advantage, and also that the degree of unionisation in a country can affect that country's gains from trade. Egger et al.…”

“…Egger et al. () mostly focus on how union density affects trade flows, however, and not on how labour market institutions affect workers’ adjustment to trade shocks. Another very related paper, Slaughter (), interestingly finds that import competition does not reduce union coverage.…”