Working Paper: CEPR ID: DP1445
Authors: Graziella Bertocchi
Abstract: We consider a small, unionized economy which interacts with an economically larger one, and we study the growth implications of different institutional structures for the labour markets. We study three possible scenarios. Under decentralized bargaining in the large economy, the two countries converge to the same level of wages and income, even though these levels will be lower than under perfect competition. Under centralized bargaining in the large economy, the small one will end up with a higher capital to labour ratio and GDP in the steady state. This outcome will not necessarily be associated with higher wages and per capita GNP, however. Another possible scenario, with a competitive labour market in the large economy, predicts long-run equalization of per capita capital and production, but lower wages and per capita GNP in the small economy.
Keywords: underdevelopment; wage bargaining; trade; international capital flows
JEL Codes: F21; J50
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Decentralized bargaining in the large economy (J59) | lower wage and income levels in the small economy (J31) |
| Centralized bargaining in the large economy (J50) | higher capital-to-labor ratio in the small economy (D29) |
| Centralized bargaining in the large economy (J50) | higher GDP in the small economy (E20) |
| higher capital-to-labor ratio in the small economy (D29) | higher GDP in the small economy (E20) |
| Competitive labor market in the large economy (J49) | lower wages in the small economy (J31) |
| Competitive labor market in the large economy (J49) | lower per capita GNP in the small economy (P19) |