University of Helsinki
Abstract. This paper examines the strategic interaction between a foreign direct investor, a labour union and a self-interested government in the following cases: (a) a competitive labour market, (b) bargaining over wages and employment, or (c) bargaining over wages only. The investor and the union lobby the government for taxation and labour market regulation, and the investor uses its control rights to protect its investment against expropriation. The main findings are as follows. In cases (a) and (b) above, the government can use taxation and labour market regulation as a non-distorting vehicle to press the investor’s profits to the minimum. Hence, union rights and right-to-manage bargaining (c) predict higher profits for foreign direct investment.
(2009) Population Growth Overshooting and Trade in Developing Countries. Journal of Population Economics 22: 43-56. (co-authored with Ulla Lehmijoki)
Abstract. This paper examines a developing economy by a family-optimization model in which the number of children is a normal good in preferences. Trade liberalization generates two effects: an income effect, which raises population growth in the short run; and a gender wage effect, which decreases that in the long run. With higher income, families invest more in capital. Because female labor is more complementary to capital, a higher level of investment increases women’s relative wages and attracts more of them from child rearing into production. Consequently, the population growth rate falls below the original level in the long run. This paper also provides some empirical evidence on these results.
(2008) Self-Interested Governments, labor Unions, and Immigration Policy. AUCO Czech Economic Review 2: 7-20
Abstract. This paper examines an economy with following properties. Attempts to restrain illegal immigration incur costs. Illegal workers can work only in the competitive sector. Workers and employers bargain over wages in the unionized sector and lobby the government for immigration policy and workers’ bargaining power. The main findings are as follows. If the government can determine legal immigration, then it expropriates rents from labor unions. In that case, neither workers nor employers are worse off, if legal immigration is increased by an international agreement. High per worker public spending involves border enforcement and the protection of union power.
(2008) Emission Policy in an Economic Union with Poisson Technological Change. Applied Mathematics and Computation 204: 589-594
Abstract. This study examines optimal emission policy in a union of countries. In each country, labor is allocated between production and R&D which generates Poisson technological change. Production incurs emissions that are spread all over the union and aggravates pollution. Utility in any country depends negatively on both emissions and pollution in the union. The central planner of the union sets emission taxes for the countries. This study constructs a Pareto-optimal emission policy for the union.
(2008) Competition and Product Cycles with Non-Diversifiable Risk. Journal of Economics 94: 1-30.
Abstract. This paper analyzes the growth effects of competition in a product-cycle model where R&D firms both innovate and imitate and households are subject to non-diversifiable risk. I prove that product market competition promotes growth when the initial level of competition is high enough. In contrast to the earlier product-cycle models with diversifiable risk, I show also the following. Some positive profits are necessary for technological change. The larger the proportion of industries subject to price competition, the slower economic growth.
Accepted for publication in Journal of Economics.
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(2006) Political Instability, Gender Discrimination, and Population Growth in Developing Countries. Journal of Population Economics 19: 431 – 446. (Co-authored with Ulla Lehmijoki)
Abstract. This paper introduces gender discrimination and population growth into a model of political economy. It is assumed that households are family dynasties and the government keeps up the army for the case of political instability in the country. It is shown that there are economic limits to conscription from young men. Therefore, to ensure the sufficient supply of the men in the conscription age,the government boosts population growth though hampering the participation of women in production. Some
empirical evidence on the interdependence of political instability and population growth is provided. DOWNLOAD
(2005) Common Markets, Economic Growth, and Creative Destruction. Journal of Economics 10. Supplement 1: 57-76.
Abstract. Economic integration is examined in a multi-economy Schumpeterian growth model where economies differ in their research environment, and consequently in the productivity of R&D. It is shown that economies with more or less the same productivity of R&D integrate. In equilibrium, there can be many common markets with different growth rates as well as stagnating economies with decreasing relative income. A small economy with low incentives to save can avoid stagnation, if its R&D is so productive that a common market with a positive growth rate can accept it as a member. Download
(2005) International Labour Union Policy and Growth with Creative Destruction. Review of International Economics 13: 90-105.
Abstract. A multi-economy Schumpeterian growth model is constructed. Economies are interdependent through technology transfer. Households can stay as workers or become researchers at some cost. Workers are employed in production and researchers in R&D. Workers are unionized and union power depends on the government’s protection. The main findings are as follows. If international technological dependence increases, then workers’ wages, the growth rate and the level of welfare fall. The international coordination of labour union policy raises workers’ wages and promotes growth and welfare. DOWNLOAD
(2004) Union-Firm Bargaining, Productivity Improvement and Endogenous Growth. LABOUR: Review of Labour Economics and Industrial Relations. Volume 18: 191-205.
Abstract. This paper presents a growth model with two sectors. In the high-tech sector, R&D increases productivity and union-firm bargaining determines wages, but in the traditional sector there are neither R&D nor labour unions. The government is able to regulate union bargaining power. The main results are as follows. Because firms try to escape wage increases through the improvement of productivity by R&D, the increase of union bargaining power boosts R&D and growth. It is welfare enhancing to strengthen (weaken) unions when the growth rate is below (above) some critical level. A specific rule is presented for when deunionization is socially desirable. DOWNLOAD
(2003) The Political Economy of Collective Bargaining. Labour Economics 10: 253-264.
Abstract. We construct a political equilibrium in which employers and unions bargain over labour contracts, workers and capitalists lobby the government for taxation and labour market regulation and agree ex ante on the type of bargaining. We show that workers and capitalists rule out any bargain over employment, because otherwise the government would capture all the gain. Furthermore, if it is much easier to tax wages than profits, the government protects union power by labour market regulation. In such a case, the political equilibrium is characterized by strong union power and right-to-manage bargaining, which causes involuntary unemployment. DOWNLOAD