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Threat Effects and Trade: Wage Discipline through Product Market Competition

Author

Listed:
  • Dube Arindrajit

    (Department of Economics, Thompson Hall, University of Massachusetts, Amherst, MA 01002, USA)

  • Reddy Sanjay G.

    (Department of Economics, The New School for Social Research, 6 E. 16th Street, New York, NY 10003, USA)

Abstract

We present a model of the effect of heightened product market competition induced by trade liberalization on the distribution of income between profits and wages. Integration increases the employment cost of wage demands, thereby decreasing bargained wages and the share of rents accruing to workers. This effect is amplified because of the existence of strategic complementarities which bring about a race to the bottom. Wage discipline induced by trade liberalization reduces the negative impact of increased competition on firm rents, and may even raise profits.

Suggested Citation

  • Dube Arindrajit & Reddy Sanjay G., 2014. "Threat Effects and Trade: Wage Discipline through Product Market Competition," Journal of Globalization and Development, De Gruyter, vol. 4(2), pages 213-252, March.
    • Handle: RePEc:bpj:globdv:v:4:y:2014:i:2:p:213-252:n:1
    DOI: 10.1515/jgd-2012-0019
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    3. Manuel David Cruz & Daniele Tavani, 2022. "Secular Stagnation: A Classical-Marxian View," Working Papers PKWP2229, Post Keynesian Economics Society (PKES).

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    More about this item

    Keywords

    trade; bargaining; rent-sharing; income distribution; threat effects;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J5 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining

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