Abstract
In a two-country duopoly model with integrated product markets, this paper1 investigates the incentives for unions to coordinate wage demands in the presence of transaction costs, and the sustainability of unions’ wage collusion. Contrary to conventional wisdom that wage collusion is always welfare-detrimental, this work shows that wage coordination in the presence of low minimum wages may lead, from a social point of view, to a Pareto superior outcome with respect to separate wage settings with relatively high minimum wages.
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