Trade as a Wage Disciplining Device

We estimate how trade openness affects the relationship between wages, labour productivity and foreign wages using sector-level time series for several EU member states. In some countries wages became less responsive to foreign wages as trade costs declined. We show this counter-intuitive result is as expected when wages are set by a monopoly union with a preference for wages relative to employment. Trade liberalisation then leads to more wage discipline by forcing unions to set wages more in line with labour productivity. Foreign wages simultaneously become less relevant. Our results call to rethink how trade liberalisation is affecting unionized labour markets, and offer a possible explanation for the mixed evidence found by some tests for international factor price convergence.unions, globalisation, economic geography, factor price equalisation

Union wage demands with footloose firms.

This paper analyses the wage demands of a sector-level monopoly union facing internationally mobile firms. A simple two-country economic geography model is used to describe how firms relocate in function of international differences in production costs and market size. The union sets wages in function of the firm level labour demand elasticity and the responsiveness of firms to relocate internationally. If countries are sufficiently symmetric lower foreign wages and lower trade costs necessarily lead to lower union wage demands. With asymmetric countries these intuitive properties do not always hold. But even for symmetric countries it holds that small increases in market size or trade costs makes union wages more sensitive to the foreign wage level.

Globalisation, concentration and footloose firms: in search of the main cause of the declining labour share.

Over the last two decades the share of national income which accrues to labour has followed a marked downward trend across a host of industrialised countries. This paper attempts to assess the importance of several potential causes of this phenomenon. We investigate compositional effects, the effect of declining trade costs, changes in the market structure (concentration) and the effect of low-wage competition between countries. Overall, the findings suggest that lower trade costs and factors related to economic integration such as industry concentration, the market power of firms and increased international low-wage competition indeed affect the labour share. However, their effect has been quite limited when compared to changes in the sectoral composition, the effects of technological change, cyclical factors and changes in the prices of intermediary goods.

Error-correction-based cointegration tests for panel data

This article describes a new Stata command called xtwest, which implements the four error-correction-based panel cointegration tests developed by Westerlund (2007). The tests are general enough to allow for a large degree of heterogeneity, both in the long-run cointegrating relationship and in the short-run dynamics, and dependence within as well as across the cross-sectional units

Zin of onzin van structurele lastenverminderingen?

De hoge (para)-fiscale druk in België wordt gezien als een belangrijke oorzaak van de hoge werkloosheidsgraad. Deze hoge werkloosheidsgraad gaat echter gepaard met een hoog aantal openstaande vacatures. Men kan zich dan ook de vraag stellen of verdere lastenverlagingen zullen bijdragen tot een vfirmindering van de werkloosheidsgraad. Deze studie beschrijft een eenvoudig maar realistisch kader waarbinnen de effecten van arbeidsmarktmaatregelen op de werkloosheid kunnen worden beschreven. Bij een vergelijking tussen België en Denemaken van de factoren die de werkloosheidsduur bepalen blijkt dat het Belgisch systeem van uitkeringen die niet beperkt zijn in de tijd de werkloosheidsduur significant verlengt

Globalisation, concentration and footloose firms: in search of the main cause of the declining labour share

Over the last two decades the share of national income which accrues to labour has followed a marked downward trend across a host of industrialised countries. This paper attempts to assess the importance of several potential causes of this phenomenon. We investigate compositional effects, the effect of declining trade costs, changes in the market structure (concentration) and the effect of low-wage competition between countries. Overall, the findings suggest that lower trade costs and factors related to economic integration such as industry concentration, the market power of firms and increased international low-wage competition indeed affect the labour share. However, their effect has been quite limited when compared to changes in the sectoral composition, the effects of technological change, cyclical factors and changes in the prices of intfirmediary goods

Migrants looking for opportunities - On destination size and spatial aggregation in the gravity equation for migration

I consider a RUM model for migration where destination countries or regions are viewed as collections of ‘opportunities’ which are the fundamental units of choice for migrants. The best opportunity for a prospective migrant is more likely to be found in a destination that has many and diverse opportunities. Recent contributions in economics studying migration rather consider entire regions or countries as the fundamental, atomistic, units of choice. The key role of the size of destinations and the diversity within them is therefore often not fully recognised, which may lead to biased inference. I argue that the coefficient on size equals 1 in the ideal RUM model. This is also required for the gravity model for migration to have some intuitive properties: only then migration flows scale proportionally when aggregating destinations, and there is zero net migration between otherwise similar regions of different size. Models omitting size or using a coefficient on size different from 1 violate these properties. Imposing proportional scaling also has implications for how different sets of opportunities should be combined. The approach is showcased in a study of internal migration and urbanisation in Ethiopia