The effects of union bargaining power and trade liberalisation on industry selection are analysed within a two-country heterogeneous-firm model with firm-specific unions and inter-country asymmetries in size and union power. Union bargaining power is shown to have more nuanced effects on efficiency and welfare than what typically suggested by conventional wisdom. Whilst the higher wages resulting from an unfavourable union power differential harm firms’ competitiveness, by reinforcing standard market access mechanisms, they give rise to aggregate demand effects that can act as a catalyst for industry and result in a pro-variety effect.
|Number of pages||32|
|Early online date||22 Oct 2014|
|Publication status||Published - 28 Feb 2015|
- Trade liberalization
- Competitive selection
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- Business School, Economics - Jaffrey Chair of Political Economy
- Centre for Energy Transition