Lower foreign wages lead to decreased union wage demands in global economy.
The article examines how a union decides on wages when dealing with companies that can easily move to other countries. By using a simple economic model, the researchers show that if foreign wages are lower or trade costs are reduced, the union will ask for lower wages. This is especially true for countries that are similar in size and costs. However, even small changes in market size or trade costs can make the union more sensitive to foreign wage levels.