Union Wage Strategies and International Trade

Abstract

We characterise a full set of possible international trade regimes for different combinations of wages in a two‐country model of oligopoly with a homogeneous product. We show that the nature of any equilibrium trade will be either inter‐industry (one‐way) or intra‐industry (two‐way) depending on (endogenous) union choices between high and low‐wage strategies. We show that intra‐industry trade is the more likely the lower are trade costs, and that under intra‐industry trade, falling trade costs lead monopoly unions to set higher wages, but the opposite obtains under inter‐industry trade.

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