اثرات سرریز بین المللی استحکام بازار کار

This paper analyses the implications of real wage rigidities in a two-country stochastic general equilibrium model. It is shown how real wage rigidities in one country affect welfare in both countries. By assuming that the labour unions within each country decide whether wages are flexible or rigid, it is found that wages will be flexible in either none, one or both of the countries. Hence, even in a symmetric model flexible wages in one country and rigid wages in the other may be an equilibrium. Since there are international spill-over effects of the choice of wage setting regime, the utilitarian solution is also considered. Interestingly, this does not necessarily entail more real wage flexibility than in the Nash equilibrium.

In Europe there has recently been a debate on the implications and in particular on the welfare costs associated with labour market rigidities. These rigidities can be divided into two main categories: the lack of labour mobility and the existence of real wage rigidities. Cultural and linguistic barriers may limit a significant rise in European labour market mobility, and even between regions within the same country the mobility of labour is low, see e.g. Decressin and Fatás (1995). With a low degree of labour mobility, wage flexibility is particularly important in allowing the labour markets to adjust in response to macroeconomic fluctuations. However, it is widely believed that real wages in Europe are quite rigid, with the degree of real wage rigidity varying considerably across countries, see e.g. Berthold et al. (1999). This paper analyses the implications of labour market rigidities within the framework of a two-country stochastic general equilibrium model.1 The key contribution of the paper is to endogenize the choice of wage setting regime by allowing labour unions to decide whether real wages are to be flexible or rigid. If wages are flexible, the unions are able to set wages contingent on the state of the economy resulting from exogenous shocks. However, the possibility of doing so comes at the cost of having to verify the state of the economy, i.e. the level of productivity in both countries. This is assumed to require some effort, which is carried out by the workers.2 We assume that the labour unions adopt the wage setting procedure that maximizes the expected utility of its members. The way the productivity shocks affect the economy depends critically on whether wages are flexible or rigid. By specifying a fully micro-founded general equilibrium model we are able to analyse how labour market rigidities affect the domestic as well as the foreign economy. We also conduct a consistent welfare analysis allowing us to establish conditions under which the different labour market regimes will be chosen by the welfare maximizing unions. Thereby we distinguish ourselves from the bulk of the literature on wage rigidities and labour market reform, see e.g. Sibert and Sutherland, 2000 and Calmfors, 2001. By analysing how labour market structures in one country affect trading partners, our paper is related to Davis (1998). He sets up a two-country model to analyse the interdependencies between a flex wage country and a country with a binding minimum wage. However, whereas Davis (1998) addresses the issue of structural unemployment, the present contribution considers fluctuations of employment to fundamental shocks to the economy.3 Turning to the results we find that real wage flexibility in the domestic country unambiguously leads to lower consumption variance in both countries compared with the case of rigid domestic wages. This is beneficial for the workers. However, the wage setting regime also affects expected consumption. We show that whether expected consumption will be highest under flexible or rigid wages depends on the parameters of the model. Abstracting from the cost of state verification, domestic workers prefer domestic wages to be flexible since the welfare gain from lower consumption variance dominates the possible loss from lower expected consumption. However, the potentially positive effect of domestic wage rigidity on the expected level of foreign consumption may welfare-dominate the negative effect of higher foreign consumption variance. In this case foreign agents prefer domestic wages to be rigid even though wage rigidity increases consumption volatility. The domestic wage setting regime affects the incentive of the foreign unions to choose flexible wages. We find that foreign unions are more likely to adopt flexible wages if domestic wages are rigid than if they are flexible. This implies that if the cost of verifying the level of productivity is within a certain interval, the unions in one country will choose flexible wages whereas the unions in the other country will choose rigid wages. Hence, we find asymmetric equilibria to be possible in a model that is purely symmetric ex ante. Since wage setting in one country affects welfare in the other country, the labour market equilibrium is not necessarily equivalent to the utilitarian solution and there may be gains from pursuing an internationally coordinated labour market policy. We show that whether this is indeed the case depends on the cost of state verification. Interestingly, the utilitarian solution does not necessarily entail more real wage flexibility than the Nash equilibrium. Finally, we find that the asymmetric equilibrium with flexible wages in one country and rigid wages in the other may be the solution that maximizes the joint welfare of the two countries’ and hence it may be the outcome of the coordinated policy. This remainder of the paper is structured as follows. Section 2 sets up the model and derives the supply and demand relations. Section 3 characterizes the equilibrium. Section 4 shows how welfare is affected by real wage rigidity at home and abroad, and Section 5 discusses the resulting equilibria in wage setting regimes. Section 6 concludes.

This paper has provided a rigorous general equilibrium analysis to trace out the effects of real wage rigidities in internationally integrated economies. We have shown how real wage rigidities affect both the expected level of consumption as well as the variance of consumption, which are both important determinants for welfare. Moreover, we have demonstrated how wage rigidities are transmitted between countries through international trade. Assuming that the wage setting regime is determined by unions each maximizing the welfare of its members, the international transmission of shocks implies that real wages may be rigid in either none, one or both countries. Hence, for certain parameter values we may end up in an asymmetric equilibrium where wages are flexible in one country and rigid in the other. This is interesting since it challenges the conventional view that once labour market reforms are undertaken in a sufficient number of countries in Europe, the rest will need to follow. For different parameter values all three equilibria can be equivalent to the utilitarian outcome achieved by an internationally coordinated labour market policy. However, the conditions for the joint policy to result in either of the three equilibria are not the same as the conditions for the country-specific unions, implying that a coordinated labour market policy may be welfare improving. It is not clear whether this coordinated policy will lead to more or less rigidity than the decentralized policy.