Non‐traded Goods, Globalization and Union Influence

Abstract

We study how globalization affects sector‐specific wages, employment levels and welfare in a model of general oligopolistic equilibrium with partly unionized labour markets. Globalization is modelled as either reducing trade costs in open sectors or opening up shielded sectors to trade. Both forms of globalization increase union coverage and lead to lower union wage premia in shielded sectors. Trade cost reductions furthermore lead to higher union wage premia in open sectors and to lower aggregate welfare, while an increased number of open sectors lowers the union wage premium in open sectors, and may increase welfare.