Hit by the Silk Road: how wage coordination in Europe mitigates the China shock

Abstract

Coordination in collective wage setting can constrain potential monopoly gains to unions in non-traded-goods industries. Countries with national wage coordination can thus stabilize overall employment against fluctuations and shocks in the world economy. We test this argument by exploring within-country variation in exposure to competition from China in 13 European countries. Our estimates demonstrate that in countries with uncoordinated wage setting, regions with higher import exposure from China experienced a marked fall in employment, while countries with wage-coordination experienced no such employment effects. We show that our findings are robust to alternative measures of wage coordination, industry classifications, and trade exposure.