Integration of Product Markets and Lower Welfare in an Economy with Centralized Wage Setting

Jan Rose Sorensen

Scottish Journal of Political Economy, 1993, vol. 40, issue 3, 323-29

Abstract: In this paper, it is shown that product market integration may decrease welfare in an economy with centralized wage setting. In a nonintegrated economy, a central labor union takes into consideration that the wage rate affects the price level and, in turn, the real value of money balances. This is not the case in an integrated economy where the price level will be exogenous to the union. Hence, the real wage becomes higher and welfare may become lower. Copyright 1993 by Scottish Economic Society.

Date: 1993
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