Exchange Rates and Wages in Unionized Labor Markets

Abstract

The authors investigate the impact of exchange rate movements on wage determination in unionized labor markets. Using a simple model of international oligopoly, the authors show that organized labor has a rational incentive to accept lower wages in the face of a currency appreciation. They examine this proposition empirically using a matched worker-firm data set for Portugal and, though the impact varies considerably with worker characteristics, find results consistent with the predictions of the model.