Threat Effects and Trade: Wage Discipline through Product Market Competition

Arindrajit Dube and Sanjay Reddy

Journal of Globalization and Development, 2014, vol. 4, issue 2, 213-252

Abstract: We present a model of the effect of heightened product market competition induced by trade liberalization on the distribution of income between profits and wages. Integration increases the employment cost of wage demands, thereby decreasing bargained wages and the share of rents accruing to workers. This effect is amplified because of the existence of strategic complementarities which bring about a race to the bottom. Wage discipline induced by trade liberalization reduces the negative impact of increased competition on firm rents, and may even raise profits.

Keywords: trade; bargaining; rent-sharing; income distribution; threat effects (search for similar items in EconPapers)
JEL-codes: D31 D33 F12 F15 F16 J3 J5 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (3)

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DOI: 10.1515/jgd-2012-0019

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