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Labor Unions, Globalization, and Mercantilism

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  • Wolf-Heimo Grieben
  • Fuat Sener

Abstract

We analyze the growth and welfare effects of globalization in a dynamic Schumpeterian North-South product-cycle model. Economic growth is driven by R&D activities of Northern entrepreneurs. Top Northern production technologies are imitated by the South. In the North, there is wage bargaining between a labor union and firms, and a minimum wage rate exists. Unilateral Northern trade liberalization reduces the rate of innovation, increases Northern unemployment, and reduces both Northern and Southern per-capita welfare. The effects are reversed in the case of unilateral Southern trade liberalization. Hence, wage bargaining above a given minimum wage promotes mercantilist behavior of developed countries.

Suggested Citation

  • Wolf-Heimo Grieben & Fuat Sener, 2009. "Labor Unions, Globalization, and Mercantilism," CESifo Working Paper Series 2889, CESifo.
    • Handle: RePEc:ces:ceswps:_2889
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    More about this item

    Keywords

    globalization; product cycle; endogenous growth; labor unions; minimum wage; mercantilism;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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