Wage Differentials: Trade Openness and Wage Bargaining

Abstract

We build a theoretical model that incorporates unionization in thelabor market into a Heckscher-Ohlin-Samuelson (HOS) framework to in-vestigate the impact of unionization on the Stolper-Samuelson Theorem.To capture the American economy case, we assume that unskilled labor inthe manufactured goods sector is unionized, and that sector is intensivein skilled labor, and that trade liberalization increases the relative priceof manufactured goods. In the HOS model, trade liberalization inducesa reallocation of production towards the sector that uses intensively thecountry's most abundant factor. The resulting change in relative labor de-mand impacts wage bargaining in the unionized sector, which, in turn, hasa dampening eect on the Stolper-Samuelson eect. Moreover, wages ofunionized workers are even less responsive to trade liberalization. Throughtraditional mandated-wages regressions, we show that skilled-wage dier-entials changes were less pronounced among more unionized sectors in theU.S. economy for the 1979-1990 period.