Labor Market Regulation, International Trade and Footloose Capital

Tapio Palokangas

No 10468, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: I examine the effects of globalization in countries where the employed workers support the unemployed and the governments control wages by regulating the workers' relative bargaining power. I use a general oligopolistic equilibrium model of two integrated countries with two inputs: labor and potentially footloose capital. National competition for jobs by labor market deregulation creates a distortion with suboptimal wages. The mobility of capital aggravates that distortion by increasing the wage elasticity of labor demand, which decreases wages and welfare even further. The delegation of labor market regulation to an international agent eliminates that distortion, increasing wages and aggregate welfare.

Keywords: international trade; footloose capital; labor market regulation; capital market liberalization (search for similar items in EconPapers)
JEL-codes: C78 F16 F68 J52 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2017-01
New Economics Papers: this item is included in nep-int and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published - revised version "Public Policy, Footloose Capital, and Union Influence" published in: Review of International Economics, 2020, 28 (4), 976-991.

Downloads: (external link)
https://docs.iza.org/dp10468.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp10468

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().