The labor market effects of trade unions in an open economy: Layard meets Melitz
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Trade unions are typically able to convert their industrial power into political power. We show that, depending on the constellation of parameters, stronger trade unions may improve welfare in terms of an increase in aggregate employment and output if they successfully lobby for lower trade barriers set by the government.
KeywordsTrade unions Lobbying Trade liberalization
We thank an anonymous referee for very insightful comments. The paper also benefited from comments by Laszlo Goerke, Xenia Matschke, Carsten Eckel, Gerald Willmann, Benjamin Jung, and from participants at conferences in Göttingen and Trier.
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