North-South Trade, Unemployment and Growth: What’s the Role of Labor Unions?

Wolf-Heimo Grieben and Fuat Sener ()
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Fuat Sener: Department of Economics, Union College, Schenectady, New York, USA

No 2012-06, Working Paper Series of the Department of Economics, University of Konstanz from Department of Economics, University of Konstanz

Abstract: We construct a North-South product-cycle model of trade with fully-endogenous growth in which both countries experience unemployment due to union wage bargaining. We find that unilateral Northern trade liberalization reduces growth and increases unemployment in both countries, while unilateral Southern trade liberalization has the opposite effects. We show that the existence of labor unions matters for trade liberalization to have any effect on Northern innovation and worldwide growth. For empirically plausible parameter values, bilateral trade liberalization by equal amounts increases growth and reduces unemployment in both countries. Stronger Northern labor unions hurt both countries by reducing growth and increasing unemployment. However, stronger Southern labor unions exert a positive growth effect for both countries, while decreasing Northern unemployment and increasing Southern unemployment.

Keywords: trade liberalization; product cycle; endogenous growth; labor unions; unemployment (search for similar items in EconPapers)
JEL-codes: F16 F43 J51 O31 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2012-03-31
New Economics Papers: this item is included in nep-fdg, nep-int and nep-lab
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Citations: View citations in EconPapers (2)

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