Unions and Globalisation

Abstract

We analyze the effects of international integration of product and capital markets (i.e., globalisation) in a world where countries differ in their labour market institutions: one country has a perfectly competitive labour market while the other is unionized. We show that workers should favour autarky in the unionized country, but oppose it in the non unionized country. Vice versa for owners of capital. Aggregate gains from integration, however, are negative. We also show that, under capital mobility an increase in relative bargaining power of unions does not always improve workers' welfare: there is a critical level of bargaining strength above which an increase in union power reduces workers' income in the unionized country.Capital mobility, Unions, Globalisation