The Effects of Product Market Competition on Collective Bargaining Agreements: The Case of Foreign Competition in Canada

43 Pages Posted: 1 Aug 2007 Last revised: 28 Mar 2010

See all articles by John M. Abowd

John M. Abowd

U.S. Census Bureau; Cornell University Department of Economics; Labor Dynamics Institute; School of Industrial and Labor Relations; NBER (on leave); CREST; IZA Institute of Labor Economics

Thomas Lemieux

University of British Columbia (UBC) - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: August 1991

Abstract

In this paper we study the connections between product .market conditions. negotiated wage settlements. and union employment in the presence of foreign competition shocks. We exploit the fact that in a small open economy such as Canada the price of imports and exports should represent pure demand shocks. We specify wage and employment determination equations for a sample of collective bargaining agreements from 1965 to 1983. Our estimation strategy consists of specifying the wage as a function of firm-specific value added per worker instrumented with the price of imports and the price of exports in the industry. The OLS specification is rejected in favor of the instrumental variables specification using standard specification tests. The instrumental variables estimates imply that a 1% change in value-added per worker increases the negotiated wage settlements by 0.25%. Similarly, we specify union employment as a function of firm-specific sales instrumented by the price of imports and exports in the industry. The instrumental variables estimates are imprecise and the specification test fails to reject the OLS specification. The OLS estimates imply that a 1% change in firm-specific sales increases employment by 0.19%. We use our estimates to trace the effects of foreign competition on the industry and firm-level sales and value-added measures.

Suggested Citation

Abowd, John Maron and Lemieux, Thomas, The Effects of Product Market Competition on Collective Bargaining Agreements: The Case of Foreign Competition in Canada (August 1991). NBER Working Paper No. w3808. Available at SSRN: https://ssrn.com/abstract=473956

John Maron Abowd (Contact Author)

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