International Specialization and Labor Unions: Evidence from OECD Countries

The aim of this paper is to explore the role of the institutional determinants of international comparative advantage. Starting from a theoretically well-founded general-equilibrium framework, where specialization depends on relative factor endowments and technological differences, we study the possible additional effect of labor unions. Using country-year panel data, we obtain that they are an important determinant of relative economic performance for a sample of manufacturing sectors. In particular low wages-labor-intensive industries turn out to be relatively disadvantaged, while high wages-capital-intensive sectors are relatively advantaged by stronger labor unions. We also allow for different institutional scenarios, letting unionization patterns interact with different regimes of bargaining coordination and social security systems. Our main conclusions are not substantially altered. Copyright © 2009 The Author. Journal compilation © Blackwell Publishing Ltd 2009.