Working Paper: CEPR ID: DP1818
Authors: John Driffill; Meloria Meschi; Alistair Ulph
Abstract: Theory predicts that when economies become more integrated through the removal of tariff and other barriers to trade, resulting in an increase in competition in product markets, there should be effects on wage and employment outcomes in labour markets, particularly those in which unions are active. We investigate this idea empirically using a cross-section of UK manufacturing establishments from the 1990 WIRS data set. A reduction in non-tariff barriers from high to medium leads to lower wages, particularly for unskilled workers. Further reductions in non-tariff barriers produce a less well-determined effect. Intra-industry trade flows relative to sales, which are also used as a proxy for international integration, do not appear to affect wages so markedly.
Keywords: integration; wages; unions; labour markets
JEL Codes: F15; J30; J50
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Reduction in non-tariff barriers (F13) | Lower wages (J31) |
| Increased competition (L13) | Diminished market power of workers (J29) |
| Intra-industry trade flows relative to sales (F12) | No significant impact on wages (F66) |
| Higher union coverage (J50) | Protection from wage reductions due to increased integration (F16) |