Trade cost reduction, subcontracting and unionised wage

Maiti, Dibyendu S. and Mukherjee, A. (2013) Trade cost reduction, subcontracting and unionised wage. Labour Economics, 21 . pp. 103-110. ISSN 0927-5371

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Abstract

We show the effects of trade cost reduction in the presence of a domestic firm's strategic output allocation between formal in-house production and subcontracting to the informal sector. Considering a one-way trade, we show that trade cost reduction increases the in-house unionised wage, in-house employment, union utility, the formal–informal wage gap and consumer surplus, it reduces informal production and the profit of the domestic firm, and it creates an ambiguous effect on welfare. Whether trade cost reduction increases the income gap between the domestic producer and the labour union is ambiguous, and depends on the trade cost and the cost of subcontracting. Considering a two-way trade with symmetric segmented markets, we show that a symmetric trade cost reduction reduces the domestic unionised wage, domestic in-house employment, union utility, it increases informal production, consumer surplus and it creates ambiguous effects of the profits.

Item Type:	Journal Article
Subjects:	H Social Sciences > HD Industries. Land use. Labor
Divisions:	Faculty of Business and Economics (FBE) > School of Economics
Depositing User:	Ms Shalni Sanjana
Date Deposited:	02 Apr 2013 00:50
Last Modified:	21 Jun 2016 23:38
URI:	http://repository.usp.ac.fj/id/eprint/5625

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