In this thesis how labour markets are affected by globalisation is examined. The thesis takes the form of three chapters. The first chapter looks at the state of trade unions in Europe and how they have been affected by globalisation; the second chapter is theoretical in nature and shows how the increasing size of trade blocs and lower transport costs can help to explain the decline in trade union density; and the third chapter looks at how the ability of firms to locate production in more than one country can affect wages and unemployment. The first chapter describes trends related to trade unions in Europe, before examining how globalisation can affect trade unions and how trade unions may respond. Since the 1980s there has been a general decline in trade union density and strike activity. At the same time there has been an increase in globalisation. Although common explanations have been put forward for the decline of trade union density across European countries, no cointegration has been found between trends in trade union density. Despite declines in trade union density, unions have continued to be successful in gaining wage premia for their members. The increase in globalisation has been associated with an increase in the elasticity of demand for labour. This affects the employment/wage trade o_ faced by trade unions. There is also some evidence that multinationals can use their cross-border bargaining power to reduce wages. Unions have reacted to globalisation by cooperating internationally, but any progress towards cross border collective bargaining has been at best slow. A simple model is presented in the chapter in order to anticipate the issues discussed in chapters two and three. The model suggests that unions will be more likely to cooperate internationally if they are substitutes in production and if the reservation wage is low. The second chapter looks at how multinational enterprises (MNEs) can affect wages and unemployment. While the increase in international firm mobility has been well documented, its effects on macroeconomic aggregates and in the labour market are still controversial. MNEs benefit from an international outside option during wage bargaining, leading to a decrease in average wages. However, a strategic incentive to hire extra workers in a foreign (home) plant in order to reduce wages in the home (foreign) plant has an indirect positive effect on wages due to spillovers resulting from an increased demand for labour. In a framework of frictional unemployment, permitting MNEs leads to a decrease in unemployment. Abstracting from transport and plant fixed costs, MNEs lead to higher wages. However, including transport and plant costs generally leads to lower wages, though the effects are small. The strategic hiring effect is important in mitigating the fall in wages. Finally, in the third chapter a model is presented which shows how increased product market competition due to an increase in the size of trade blocs and a lower cost of transporting goods internationally can lead to a decline in trade union density. Increasing international product market competition harms unionised workers more than workers who bargain wages individually. This is as union wages are a function of average revenue but individually bargained wages are a function of marginal revenue. Increasing competition narrows the gap between average and marginal revenue. This lowers the incentive to be a member of a trade union, which leads to a fall in trade union density. Globalisation can lead to falling union density despite a stable union wage premium and increasing union wages.
