Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/161091
Authors: 
Palokangas, Tapio K.
Year of Publication: 
2017
Series/Report no.: 
IZA Discussion Papers 10468
Abstract: 
I examine the effects of globalization in countries where the employed workers support the unemployed and the governments control wages by regulating the workers' relative bargaining power. I use a general oligopolistic equilibrium model of two integrated countries with two inputs: labor and potentially footloose capital. National competition for jobs by labor market deregulation creates a distortion with suboptimal wages. The mobility of capital aggravates that distortion by increasing the wage elasticity of labor demand, which decreases wages and welfare even further. The delegation of labor market regulation to an international agent eliminates that distortion, increasing wages and aggregate welfare.
Subjects: 
international trade
footloose capital
labor market regulation
capital market liberalization
JEL: 
C78
F16
F68
J52
Document Type: 
Working Paper

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