“Globalization, Unionization and Efficiency Wages” by Laixun ZHAO
University of Florida
The paper develops a two-sector general equilibrium model of a small open economy in which one sector offers efficiency wages and the other is a mixed oligopoly populated by unionized and non unionized firms. The negotiated wage in each unionized firm is determined through efficient bargaining. The model is used to analyze the effects of import competition, migration, sector-specific foreign direct investment, de-unionization and domestic entry in the unionized sector on the allocation of resources, labor efficiency and the structure of wages. These effects depend on the pattern of commodity trade, the nature of deunionization and the union orientation towards employment and wages. The analysis highlights the role of labor market institutions and distortions as key factors that influence the structure of wage differentials in a small open economy.