Business Intelligence

Labor Unions, Globalization, And Mercantilism

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Executive Summary

The authors analyze the growth and welfare effects of globalization in a dynamic Schumpeterian North-South product-cycle model. Economic growth is driven by R&D activities of Northern entrepreneurs. Top Northern production technologies are imitated by the South. In the North, there is wage bargaining between a labor union and firms, and a minimum wage rate exists. Unilateral Northern trade liberalization reduces the rate of innovation, increases Northern unemployment, and reduces both Northern and Southern per-capita welfare.

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