Globalization, wage setting, and the welfare state

This paper explores the consequences of different aspects of globalization on wage setting, (un)employment, and the welfare state. Social standards are endogenously determined by politicians who have to solve a trade-off between equity and efficiency. This trade-off ultimately results from the wage-setting process, which is modeled as a (sectorally) decentralized bargain between firms and unions. Trade is of the intraindustry variety. It is shown that globalization does not generally alter the trade-off between equity and efficiency faced by social policy makers. (C) 2002 Society for Policy Modeling. Published by Elsevier Science Inc. All rights reserved.