Economic Integration, Wage Policies and Social Policies

Arbeitspapier

This paper uses a two country trade and geography model of monopolistic competition to study the effects of wage policies and social policies on the location of industry. It is first shown that a union wage push in one of two otherwise identical countries induces a relocation of firms which increases with the level of economic integration as measured by trade costs. This 'traditional view' is then contrasted with a 'new economic geography view' in which one of the countries has historically emerged as the core. The agglomeration rent which accrues to the mobile factor gives unions and governments in the core scope to set higher wages and to choose more generous welfare policies than their counterparts in the periphery without having to encounter an exit of firms. The relationship between the maximum international union wage differential and the level of integration is shown to be bell-shaped.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IZA Discussion Papers ; No. 748

Classification and Topics

• Classification: Wirtschaft ; International Investment; Long-term Capital Movements ; Size and Spatial Distributions of Regional Economic Activity ; Trade and Labor Market Interactions ; Economic Integration ; International Migration ; Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
• Subject: integration ; wages ; industry location ; agglomeration ; monopolistic competition ; Wirtschaftsintegration ; Industriestandort ; Standorttheorie ; Lohnpolitik ; Sozialpolitik ; Standortwettbewerb ; Neue ökonomische Geographie ; Monopolistischer Wettbewerb ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Pflüger, Michael
• Event: Veröffentlichung
• (who): Institute for the Study of Labor (IZA)
• (where): Bonn
• (when): 2003

Further information

• Handle: http://hdl.handle.net/10419/21398
• Last update: 10.03.2025, 11:44 AM CET