Can Deunionization Lead to International Outsourcing?
Kjell Erik Lommerud
University of Bergen - Department of Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)
University of Bergen - Department of Economics
Odd Rune Straume
University of Minho - Economic Policies Research Unit (NIPE); CESifo (Center for Economic Studies and Ifo Institute)
CESifo Working Paper Series No. 1545
We analyze unionized firms' incentives to outsource intermediate goods production to foreign (low-cost) subcontractors. Such outsourcing leads to increased wages for the remaining inhouse production. We find that stronger unions, which imply higher domestic wages, reduce incentives for international outsourcing. Though somewhat surprising, this result provides a theoretical reconciliation of the empirically observed trends of deunionization and increased international outsourcing in many countries. We further show that globalization - interpreted as either market integration or increased product market competition - will increase incentives for international outsourcing.
Number of Pages in PDF File: 33
Keywords: international outsourcing, deunionization, globalization
JEL Classification: F16, J51, L24
Date posted: October 24, 2005