Union wage sensitivity to trade and protection: Theory and evidence

Abstract

We develop a model featuring union-firm bargaining, strategic rivalry between the unionized domestic firm and its foreign competitor, and endogenous protection. The model frames a micro-level empirical study of the role of trade and trade policy in union wage determination. The results indicate that (1) trade flows and trade policy influence wages as much as the domestic factors usually considered, (2) imports and tariffs are negatively correlated with wages, and (3) there is little evidence of the trade flows endogeneity suggested by strategic trade theory or the tariff endogeneity that could explain the negative tariff coefficient.