Product Market Integration, Comparative Advantages and Labour Market Performance

Torben M. Andersen, Jan Rose Skaksen

Research output: Working paperResearch

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Abstract

In a two-country model with trade driven by comparative advantages, it is considered how imperfectly competitive labour markets are affected by lower frictions in international goods trade. Easier goods trading is equivalent to increased mobility of employment across countries and thus a change in the trade-off between wages and employment faced by wage setters. While the effects of product market integration on the trade-off between wages and employment in general is ambiguous, it is shown that product market integration works like a general improvement in productivity via the specialization it allows through trade. Unambiguously, real wages and employment and welfare improve upon reductions in trade frictions, and therefore workers are better off irrespective of whether the market power of unions is enhanced or muted.
Original languageEnglish
Place of PublicationBonn
PublisherIZA
Number of pages18
Publication statusPublished - Jan 2003
SeriesIZA Discussion Paper
Number698

Keywords

  • Trade frictions
  • Wage formation
  • Employment
  • Welfare gains

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