The impact of trade on employment, welfare, and income distribution in unionized general oligopolistic equilibrium

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This paper sets up a general oligopolistic equilibrium model with unionized labor markets. By accounting for productivity differences, the model features profit and wage differentials across industries. We use this setting to study the impact of trade liberalization on employment, welfare, and the distribution of income. In particular, we show that a movement from autarky to free trade with a symmetric partner country lowers union wage claims and therefore stimulates employment and raises welfare. Whether firms can extract a larger share of rents in the open economy depends on the competitive environment as well as on the degree of centralization in union wage setting. Finally, the distribution of profit income across firm owners remains unaffected, while the distribution of wage income becomes more equal when a country opens up to trade. Terms of use: Documents inJEL-Code: F12, F16, J51, L13.

The impact of trade openness on the unemployment rate in G7 countries

“…Indeed, there are a great number of theoretical frameworks that drive a possible relationship between trade positive effect of real trade openness on unemployment was larger than the effects of many labour market institutional variables. Egger and Etzel (2012) investigated the impact of trade on welfare, employment, and income inequality, and they indicated that trade altered rent sharing and affected inequality along multiple dimensions. In open economies, industry factors were less relevant for wage inequality and technological dissimilarity increased gains from trade but decreased employment.…”

The role of institutions in explaining wage determination in the Eurozone: A panel cointegration approach

“…Nevertheless, the impact of labour market and wage bargaining institutions on the aggregate wage may change depending on the level of international competition and, therefore, the degree of openness of an economy. By means of a theoretical model, Egger and Etzel (2012) show that, while firms in more productive industries (and, thus, countries) pay higher wages, exporting lowers per-worker profits because mark-ups on foreign markets are smaller. Accordingly, trade unions are more cautious about the negative effects of wage rises on employment and moderate their wage demands.…”

Growing Income Inequalities

“…Deunionization (defined as a fall in the proportion z of the unionized sectors) implies that the competitive wage increases (as labour demand increases), that the union wage premium falls and that aggregate welfare increases, provided the scale of deunionization (i.e., the fall in the proportion of unionized sectors) is sufficiently wide. Egger and Etzel (2009) somewhat qualify these results of Bastos and Kreickemeier by slightly changing the assumptions in the model. They consider unionization as pervasive in the economy, which gives rise to involuntary unemployment.…”