TRADE LIBERALIZATION WITH IMPERFECT COMPETITION IN GOODS AND LABOR-MARKETS

The effects of removing tariffs and trade barriers on the behaviour of utilitarian monopoly trade unions are considered. A model of intra-industry trade in differentiated commodities under monopolistic competition and increasing returns to scale is used. National and international trade unions are distinguished. Removal of trade barriers reduces monopoly power in labour markets. This forces wages down and increases employment and the number of firms in the differentiated goods industry. The removal of trade barriers appears to increase strongly the incentive for national unions to cooperate internationally. Such cooperation would undermine the benefits of trade liberalization for non-members of the unions.