Flexibility in Wage Setting Under the Threat of Relocation

22 Pages Posted: 8 Feb 2018

See all articles by Anna Goeddeke

Anna Goeddeke

Reutlingen University - ESB Business School

Justus Haucap

Heinrich Heine University Dusseldorf - Department of Economics; German Institute for Economic Research (DIW Berlin)

Annika Herr

Düsseldorf Institute for Competition Economics (DICE), Heinrich-Heine-Universität; Ruhr Graduate School in Economics; CINCH

Christian Wey

University of Düsseldorf - Düsseldorf Institute for Competition Economics (DICE)

Date Written: March 2018

Abstract

Relocation of production to countries with low labour costs has induced increased labour market flexibility, which has been praised as a silver bullet for economic growth and low unemployment. Within a unionised oligopoly framework, in which a multinational firm has the option to relocate its production to a foreign country, we analyse the welfare implications of both centralised and flexible wage‐setting regimes. For very low foreign wages, wage flexibility leads to higher welfare than a rigid centralised regime. In contrast, for ‘intermediate’ wage levels in the foreign country, an industry‐wide uniform wage leads to higher social welfare than flexible wages.

Suggested Citation

Goeddeke, Anna and Haucap, Justus and Herr, Annika and Wey, Christian, Flexibility in Wage Setting Under the Threat of Relocation (March 2018). LABOUR, Vol. 32, Issue 1, pp. 1-22, 2018. Available at SSRN: https://ssrn.com/abstract=3120081 or http://dx.doi.org/10.1111/labr.12118

Anna Goeddeke (Contact Author)

Reutlingen University - ESB Business School ( email )

Alteburgstr. 150
Reutlingen, 72762
Germany

Justus Haucap

Heinrich Heine University Dusseldorf - Department of Economics ( email )

Duesseldorf
Germany

HOME PAGE: http://www.dice.uni-duesseldorf.de

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Annika Herr

Düsseldorf Institute for Competition Economics (DICE), Heinrich-Heine-Universität ( email )

Universitaetsstrasse 1
Düsseldorf, 40225
Germany

Ruhr Graduate School in Economics

Germany

CINCH ( email )

Universitätsstraße 2
Essen, 45141
Germany

Christian Wey

University of Düsseldorf - Düsseldorf Institute for Competition Economics (DICE) ( email )

Universitaetsstr. 1
Duesseldorf, NRW 40225
Germany
+49-211-81-15009 (Phone)
+49-211-81-15499 (Fax)

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