The Location of Firms in Unionized Countries

This paper develops a two-country model of international trade with Cournot competition. The labor markets are unionized so that a trade union bargains efficiently with each firm over wage and employment. It is shown that if the bargaining power of unions differs among countries then, as trade costs are reduced, the country with relatively weak unions gradually acquires all firms. However, for a range of trade costs it is also a locally stable equilibrium for all firms to locate in the country with strong unions