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Abstract:
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In this paper, we set up a two-country general equilibrium model
where trade unions have wage bargaining power. We show that a
decrease in trade distortions inducing further product market integration
gives rise to specialization gains as well as a labour market reform
effect. The implications of the specialization gains are similar to an
increase in labour productivity, whereas the labour market reform effect
is similar to an increase in the degree of competition in the labour
market. Wages, employment and welfare increase as a result of further
product market integration. It is interesting to note that the labour
market reform effect of product market integration is achieved despite
an increase in the wage level.
JEL Classification: F15, J30, J50.
Keywords: Trade frictions, wage formation, employment, welfare
gains. |
This work is licensed under a Creative Commons License.
