Labor Market Regulation, International Trade and Footloose Capital. IZA SP No. 10468

Palokangas T (2017). Labor Market Regulation, International Trade and Footloose Capital. IZA SP No. 10468. IZA Institute of Labor Economics , Bonn, Germany.

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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.

Item Type: Other
Uncontrolled Keywords: international trade, footloose capital, labor market regulation, capital market liberalization
Research Programs: Advanced Systems Analysis (ASA)
Depositing User: Luke Kirwan
Date Deposited: 23 Jan 2017 08:29
Last Modified: 25 Jan 2017 10:59
URI: http://pure.iiasa.ac.at/14294

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