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Does product market integration lead to decentralised wage bargaining institutions?

Michele Santoni ()

No unimi-1091, UNIMI - Research Papers in Economics, Business, and Statistics from Universitá degli Studi di Milano

Abstract: This paper studies the effects of product market integration on wage-bargaining institutions. It first shows evidence of a negative correlation between the level of wage bargaining and proxy measures of integration, such as the degree of openness and import penetration, for a macro-panel of 17 OECD countries over the 1975-2000 period. It then develops a theoretical model of an import-competing unionised Cournot-Nash oligopoly. The model shows that a reduction in trade barriers, by lowering the sharable surplus between home firms and labour when the final goods are substitutes, gives unions incentives to choose more decentralised wage-bargaining institutions. This industry-level mechanism, however, works in the opposite direction with either complements or two-way trade and homogeneous goods. In these cases, cutting trade barriers raises the sharable surplus and encourages domestic wage-setters to choose more centralised institutions.

Keywords: Endogenous wage bargaining institutions; Unionised oligopolies; Trade integration (search for similar items in EconPapers)
Date: 2009-10-29
Note: oai:cdlib1:unimi-1091
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