Journal
JOURNAL OF INTERNATIONAL ECONOMICS
Volume 77, Issue 2, Pages 223-233Publisher
ELSEVIER SCIENCE BV
DOI: 10.1016/j.jinteco.2008.12.001
Keywords
Deregulation; Wage bargaining; Capital mobility; Agglomeration; Relocations
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Over the past decades, product market deregulation has typically preceded labor market reforms in OECD countries. Ibis paper incorporates labor market rigidities in a model of footloose capital in order to study how globalization might affect the trade-offs generated by labor market regulation and put pressure on labor market institutions. In this two-sector model, globalization ultimately reduces labor market rigidities through either one of two channels: capital mobility triggers a re-allocation of resources, which trade integration amplifies, away from the high-rent / highly-unionized sector; the threat of costly relocations encourages labor market deregulation, The latter channel is more efficient because it avoids sub-optimal sectoral specialization. (C) 2009 Elsevier B.V. All rights reserved.
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