Product Market Integration, Comparative Advantages and Labour Market Performance

21 Pages Posted: 10 Mar 2003

See all articles by Torben M. Andersen

Torben M. Andersen

University of Aarhus - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Jan Rose Skaksen

Copenhagen Business School - Department of Economics; IZA Institute of Labor Economics

Date Written: January 2003

Abstract

In a two-country model with trade driven by comparative advantages, it is considered how imperfectly competitive labour markets are affected by lower frictions in international goods trade. Easier goods trading is equivalent to increased mobility of employment across countries and thus a change in the trade-off between wages and employment faced by wage setters. While the effects of product market integration on the trade-off between wages and employment in general is ambiguous, it is shown that product market integration works like a general improvement in productivity via the specialization it allows through trade. Unambiguously, real wages and employment and welfare improve upon reductions in trade frictions, and therefore workers are better off irrespective of whether the market power of unions is enhanced or muted.

Keywords: Trade Frictions, Wage Formation, Employment, Welfare Gains

JEL Classification: F15, J30, J50

Suggested Citation

Andersen, Torben M. and Skaksen, Jan Rose, Product Market Integration, Comparative Advantages and Labour Market Performance (January 2003). Available at SSRN: https://ssrn.com/abstract=382821

Torben M. Andersen (Contact Author)

University of Aarhus - Department of Economics ( email )

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CESifo (Center for Economic Studies and Ifo Institute)

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Centre for Economic Policy Research (CEPR)

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IZA Institute of Labor Economics

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Jan Rose Skaksen

Copenhagen Business School - Department of Economics ( email )

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HOME PAGE: http://old.cbs.dk/staff/janroseskaksen/

IZA Institute of Labor Economics

P.O. Box 7240
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Germany

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