Endogenous Domestic Market Structure and the Effects of Trade Liberalisation in a Unionised Industry

Abstract

We offer a new perspective to the unionised wage effects of unilateral trade liberalisation by considering endogenous domestic market structure. Hence, in contrast to the existing works, which focus on the short-run effects of trade liberalisation on unionised wage, we focus on more long-run effects by considering the effects of trade liberalisation on the domestic market structure. Trade liberalisation reduces the number of active domestic firms, but it increases domestic unionised wage in the active domestic firms. Although trade liberalisation increases wage in the active domestic firms, it reduces domestic employment and total union utility at the free entry equilibrium. So, trade liberalisation benefits domestic employed workers by increasing unionised wage, but its effect on total domestic workers is not favourable.