Working Paper

Wage subsidies and international trade: When does policy coordination pay?

Authors

  • Sebastian Braun
  • Christian Spielmann
Publication Date

National labour market institutions interact across national boundaries when product markets are global. Labour market policies can thus entail spill-overs, a fact widely ignored in the academic literature. This paper studies the effects of wage subsidies in an international duopoly model with unionised labour markets. We document both positive and negative spill-over effects and discuss the benefits and costs from international policy coordination both for the case of symmetric and asymmetric labour market institutions. Our results suggest that institutional differences could sign responsible for the slow speed at which labour market policy coordination has progressed so far.

Info

JEL Classification
F16, F42, J38, H87

Key Words

  • asymmetric labour market institutions
  • Handel
  • International policy coordination
  • policy spill-overs
  • trade
  • unionised labour markets
  • Wage subsidies