Union Wage Strategies and International Trade,
- R. 49–71. NAYLOR
- Economic Journal,
This paper analyses the wage demand of a sector-level monopoly union facing internationally mobile firms. A simple two-country economic geography model describes how firms relocate in response to international differences in production costs and market size. The union, in turn, sets wages as a function of the responsiveness of firms to relocate internationally. If the international differences in labour productivity and market size are limited then lower foreign wages and lower trade costs necessarily lead to lower union wage demands. If there exist large differences between the countries in terms of productivity and market size these intuitive properties do not always hold. Counter to intuition, small increases in market size or trade costs make the union wage more sensitive to foreign wages.