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International Welfare And Employment Linkages Arising From Minimum Wages

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  • Hartmut Egger
  • Peter Egger
  • James R. Markusen
Abstract
We formulate a two‐country model with monopolistic competition and heterogeneous firms to reconsider labor market linkages in open economies. Labor market imperfections arise by virtue of country‐specific real minimum wages. Abstracting from selection of just the best firms into export status, standard effects on marginal and average firm productivity are reversed in our model, yet there are significant gains from trade arising from employment expansion. In addition, we show that with firm heterogeneity an increase in one country’s minimum wage triggers firm exit in both countries and thus harms workers at home and abroad.

Suggested Citation

  • Hartmut Egger & Peter Egger & James R. Markusen, 2012. "International Welfare And Employment Linkages Arising From Minimum Wages," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(3), pages 771-790, August.
    • Handle: RePEc:wly:iecrev:v:53:y:2012:i:3:p:771-790
    DOI: 10.1111/j.1468-2354.2012.00700.x
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    3. Lommerud, Kjell Erik & Meland, Frode & Straume, Odd Rune, 2012. "North–South technology transfer in unionised multinationals," Journal of Development Economics, Elsevier, vol. 99(2), pages 385-395.
    4. Egger, Hartmut & Etzel, Daniel, 2012. "The impact of trade on employment, welfare, and income distribution in unionized general oligopolistic equilibrium," European Economic Review, Elsevier, vol. 56(6), pages 1119-1135.
    5. Elena Cefis & Cristina Bettinelli & Alex Coad & Orietta Marsili, 2022. "Understanding firm exit: a systematic literature review," Small Business Economics, Springer, vol. 59(2), pages 423-446, August.
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    8. Benedikt Heid & Mario Larch, 2012. "International Trade and Unemployment: A Quantitative Framework," CESifo Working Paper Series 4013, CESifo.
    9. Heid, Benedikt & Larch, Mario, 2016. "Gravity with unemployment," Journal of International Economics, Elsevier, vol. 101(C), pages 70-85.
    10. Haydory Akbar Ahmed & Tareque Nasser, 2023. "Long-run relationship between the unemployment rate and the current account balance in the United States: An empirical analysis," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 22(3), pages 397-416, September.
    11. Gabriel Felbermayr & Eckhard Janeba & Holger Görg & Ansgar Belke & Michael Pflüger & Stefan Ebner, 2010. "Schadet Deutschlands Exportpolitik den Nachbarn?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 63(15), pages 03-24, August.
    12. Marco Pinto & Jochen Michaelis, 2014. "International Trade and Unemployment—the Worker-selection Effect," Review of International Economics, Wiley Blackwell, vol. 22(2), pages 226-252, May.
    13. Michael Koch, 2016. "Skills, Tasks and the Scarcity of Talent in a Global Economy," Review of International Economics, Wiley Blackwell, vol. 24(3), pages 536-563, August.
    14. Hartmut Egger & Frode Meland & Hans-Jörg Schmerer, 2015. "Differences in the degree of unionization as a source of comparative advantage in open economies," Canadian Journal of Economics, Canadian Economics Association, vol. 48(1), pages 245-272, February.
    15. Dou, Huan & Pang, Xinyuan & Ke, Huan & Liu, Yuanyuan, 2024. "Pain or gain? The effects of transportation infrastructure on labor costs in China 1," International Review of Economics & Finance, Elsevier, vol. 91(C), pages 413-431.
    16. Hartmut Egger & Frode Meland, 2011. "Product and Labor Market Deregulation in Unionized Oligopoly with Asymmetric Countries," CESifo Working Paper Series 3611, CESifo.
    17. Felbermayr, Gabriel J. & Larch, Mario & Lechthaler, Wolfgang, 2012. "Endogenous labor market institutions in an open economy," International Review of Economics & Finance, Elsevier, vol. 23(C), pages 30-45.
    18. Gan, Li & Hernandez, Manuel A. & Ma, Shuang, 2016. "The higher costs of doing business in China: Minimum wages and firms' export behavior," Journal of International Economics, Elsevier, vol. 100(C), pages 81-94.
    19. Gabriel J. Felbermayr & Mario Larch & Wolfgang Lechthaler, 2015. "Labour‐market institutions and their impact on trade partners: A quantitative analysis," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 48(5), pages 1917-1943, December.
    20. Jiménez Martínez, Mónica & Jiménez Martínez, Maribel, 2021. "Are the effects of minimum wage on the labour market the same across countries? A meta-analysis spanning a century," Economic Systems, Elsevier, vol. 45(1).
    21. Ma, Shuang & Sun, Churen & Tian, Guoqiang, 2011. "Minimum wage and export: evidence from Chinese firm-level data," MPRA Paper 35098, University Library of Munich, Germany.

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    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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