Globalisation and the effects of national versus international competition on the labour market: Theory and evidence from Belgian firm level data

In recent years a growing number of papers have looked at various aspects of globalisation and its implications for competition and trade policy. While both trade liberalisation and competition policy are aimed at promoting product market competition they operate via different channels. Trade policy, which is the responsibility of supra-national bodies like the WTO, aims to safeguard the free flow of goods and services. Competition policy, which is the responsibility of national authorities, tries to guarantee market access and contestability. When dealing with issues of 'Trade and Competition' attention should not be limited to issues relating to the product market but one should also look at implications for imperfect labour markets. The purpose of this paper is to analyse the effects of a reduction in product market monopoly power on the domestic sectoral labour market when there is a labour union bargaining with the domestic firm(s) over wage levels. A different but equally interesting question which will not be explicitly dealt with here, is the way in which labour market imperfections may affect the contestability of markets as shown for example by Dewatripont (1988).