Asymmetric Labor Markets, Southern Wages and the Location of Firms
AbstractThis paper studies the behavior of firms towards weak protection of labor standards in developing countries (South). A less than perfectly elastic labor supply in the South gives firms an oligopsony position in the labor market tempting them to strategically reduce output to cut wages. In an open economy, competitors operating where labor standards are recognized meanwhile enjoy less aggressive competitors and raise output. Delocation also increases Southern wages and triggers a competition effect, lowering ex post output and hence potential profits of a relocating firm. These effects reduce relative profitability of moving production to the South casting doubts on traditional beliefs that multinationals are attracted to regions with lower wages. Moreover, adopting a minimum wage policy in the South eliminates the oligopsony distortion and improves competitiveness of Southern firms in the world product market. It also enhances consumer and wage surplus in the South and hence unambiguously raises Southern welfare. Copyright � 2007 The Author; Journal compilation � 2007 Blackwell Publishing Ltd.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Review of Development Economics.
Volume (Year): 11 (2007)
Issue (Month): 3 (08)
Contact details of provider:
Web page: http://www.blackwellpublishing.com/journal.asp?ref=1363-6669
Other versions of this item:
- Alireza Naghavi, 2005. "Asymmetric Labor Markets, Southern Wages, and the Location of Firms," Working Papers 2005.17, Fondazione Eni Enrico Mattei.
- J80 - Labor and Demographic Economics - - Labor Standards - - - General
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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- Martin, Will & Maskus, Keith E, 2001. "Core Labor Standards and Competitiveness: Implications for Global Trade Policy," Review of International Economics, Wiley Blackwell, vol. 9(2), pages 317-28, May.
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