Economic Integration, Factor Mobility, and Wage Convergence

Gilles Saint-Paul

No 1597, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper studies the effect of economic integration of two regions on the mobility of skilled and unskilled workers across regions and on the resulting location of industrial activity. In particular, it studies what happens when wages in both regions are set by the unions of the ‘West’ – the region with a greater initial relative stock of human capital. We show that in some circumstances, it is in the interest of the West’s unions to set a speed of wage convergence greater than equilibrium, thereby generating unemployment in the ‘East’. This slows the migration of human capital towards the East, but quickens the migration of raw labour towards the West. A greater share of economic activity is eventually located in the western region. Unions in the West will benefit from this, provided human capital has low migration costs relative to raw labour.

Keywords: Centralized Wage Setting; Human Capital; Migration; Political Economy; Regional Integration; Unemployment; Unions; Wage Formation (search for similar items in EconPapers)
JEL-codes: E24 J3 J5 J61 (search for similar items in EconPapers)
Date: 1997-03
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Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Economic Integration, Factor Mobility, and Wage Convergence (1997)
Journal Article: Economic Integration, Factor Mobility, and Wage Convergence (1997)
Working Paper: Economic Integration, Factor Mobility, and Wage Convergence (1997)
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