INTERNATIONAL-TRADE AND MONOPOLIZED LABOR-MARKETS

In this paper we study a two-country model where labour unions have the power to determine the wage rates. This imperfection on the labour markets is assumed to create unempolyment. We study how the pattern of trade deviates from the traditional theory of international trade. Secondly we study how free trade affects unemployment and welfare. Free trade reduces the monopoly power of the labour unions, but a "demand effect" originating from the endowments of a non-produced good also affects the rate of unemployment.