GEP 12/07: Unionisation, International Integration and Selection

Summary

This paper sheds light on how labour market unionisation affects the competitive selection effects of international trade and wage dispersion.

Abstract

We study how unionisation affects competitive selection between heterogeneous firms when wage negotiations can occur at the firm or at the profit-centre level. With productivity specific wages, an increase in union power has: (i) a selection-softening; (ii) a countercompetitive; (iii) a wage-inequality; and (iv) a variety effect. In a two-country asymmetric setting, stronger unions soften competition for domestic firms and toughen it for exporters. With profit-centre bargaining, we show how trade liberalisation can affect wage inequality among identical workers both across firms (via its effects on competitive selection) and within firms (via wage discrimination across destination markets).

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Authors

Catia Montagna and Antonella Nocco

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