Advanced Search
MyIDEAS: Login to save this paper or follow this series

Wage Bargaining and the Boundaries of the Multinational Firm

Contents:

Author Info

  • Maria Bas
  • Juan Carluccio

Abstract

Do variations in labor market institutions across countries affect the cross-border organization of the firm? Using firm-level data on multinationals located in France, we show that firms are more likely to outsource the production of intermediate inputs to external suppliers when importing from countries with empowered unions. Moreover, this effect is stronger for firms operating in capital-intensive industries. We propose a theoretical mechanism that rationalizes these findings. The fragmentation of the value chain weakens the union's bargaining position, by limiting the amount of revenues that are subject to union extraction. The outsourcing strategy reduces the share of surplus that is appropriated by the union, which enhances the firm's incentives to invest. Since investment creates relatively more value in capital-intensive industries, increases in union power are more likely to be conducive to outsourcing in those industries. Overall, our findings suggest that multinational firms use their organizational structure strategically when sourcing intermediate inputs from unionized markets.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://cep.lse.ac.uk/pubs/download/dp0963.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0963.

as in new window
Length:
Date of creation: Dec 2009
Date of revision:
Handle: RePEc:cep:cepdps:dp0963

Contact details of provider:
Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

Related research

Keywords: wage bargaining; trade unions; sourcing; multinational firms;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Kjell Erik Lommerud & Frode Meland & Lars S¯rgard, 2003. "Unionised Oligopoly, Trade Liberalisation and Location Choice," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 113(490), pages 782-800, October.
  2. Ethier, Wilfred J, 1986. "The Multinational Firm," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 101(4), pages 805-33, November.
  3. Lommerud, Kjell Erik & Straume, Odd Rune & Sorgard, Lars, 2005. "Downstream merger with upstream market power," European Economic Review, Elsevier, vol. 49(3), pages 717-743, April.
  4. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
  5. Laura Alfaro & Andrew Charlton, 2007. "Intra-Industry Foreign Direct Investment," CEP Discussion Papers dp0825, Centre for Economic Performance, LSE.
  6. John W. Budd & Jozef Konings & Matthew J. Slaughter, . "International Rent Sharing in Multinational Firms," Working Papers, Human Resources and Labor Studies, University of Minnesota (Twin Cities Campus) 0202, Human Resources and Labor Studies, University of Minnesota (Twin Cities Campus).
  7. Raghuram G. Rajan & Luigi Zingales, 1996. "Financial Dependence and Growth," NBER Working Papers 5758, National Bureau of Economic Research, Inc.
  8. Kjell Erik Lommerud & Frode Meland & Odd Rune Straume, 2008. "Mergers and capital flight in unionised oligopolies: Is there scope for a 'national champion' policy?," NIPE Working Papers, NIPE - Universidade do Minho 10/2008, NIPE - Universidade do Minho.
  9. Lopez-de-Silanes, Florencio & La Porta, Rafael & Shleifer, Andrei, 2008. "The Economic Consequences of Legal Origins," Scholarly Articles 2962610, Harvard University Department of Economics.
  10. Juan Carluccio & Thibault Fally, 2012. "Global Sourcing under Imperfect Capital Markets," The Review of Economics and Statistics, MIT Press, vol. 94(3), pages 740-763, August.
  11. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output Per Worker Than Others?," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 114(1), pages 83-116, February.
  12. Andrei A. Levchenko, 2007. "Institutional Quality and International Trade," Review of Economic Studies, Oxford University Press, vol. 74(3), pages 791-819.
  13. Richard Baldwin & James Harrigan, 2007. "Zeros, Quality and Space: Trade Theory and Trade Evidence," NBER Working Papers 13214, National Bureau of Economic Research, Inc.
  14. Pol Antràs & Mihir A. Desai & C. Fritz Foley, 2007. "Multinational Firms, FDI Flows and Imperfect Capital Markets," NBER Working Papers 12855, National Bureau of Economic Research, Inc.
  15. Djankov, Simeon & La Porta, Rafael & Shleifer, Andrei & Lopez de Silanes, Florencio, 2001. "The regulation of entry," Policy Research Working Paper Series 2661, The World Bank.
  16. Oliver Hart & John Moore, 1998. "Foundations of incomplete contracts," LSE Research Online Documents on Economics 19354, London School of Economics and Political Science, LSE Library.
  17. James E. Rauch, 1996. "Networks versus Markets in International Trade," NBER Working Papers 5617, National Bureau of Economic Research, Inc.
  18. Lommerud, Kjell Erik & Meland, Frode & Straume, Odd Rune, 2005. "Can deunionization lead to international outsourcing?," Working Papers in Economics 15/05, University of Bergen, Department of Economics.
  19. Zhao, Laixun, 1998. "The Impact of Foreign Direct Investment on Wages and Employment," Oxford Economic Papers, Oxford University Press, vol. 50(2), pages 284-301, April.
  20. Pol Antras & Elhanan Helpman, 2004. "Global Sourcing," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 112(3), pages 552-580, June.
  21. Alejandro Cuñat & Marc J. Melitz, 2007. "Volatility, Labor Market Flexibility, and the Pattern of Comparative Advantage," NBER Working Papers 13062, National Bureau of Economic Research, Inc.
  22. Nathan Nunn, 2005. "Relationship Specificity, Incomplete Contracts and the Pattern of Trade," International Trade, EconWPA 0512018, EconWPA.
  23. Segal, Ilya, 1999. "Complexity and Renegotiation: A Foundation for Incomplete Contracts," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 66(1), pages 57-82, January.
  24. Eckel, Carsten & Egger, Hartmut, 2009. "Wage bargaining and multinational firms," Journal of International Economics, Elsevier, vol. 77(2), pages 206-214, April.
  25. Nash, John, 1953. "Two-Person Cooperative Games," Econometrica, Econometric Society, Econometric Society, vol. 21(1), pages 128-140, April.
  26. Francine Lafontaine & Jagadeesh Sivadasan, 2009. "Do Labor Market Rigidities Have Microeconomic Effects? Evidence from within the Firm," American Economic Journal: Applied Economics, American Economic Association, vol. 1(2), pages 88-127, April.
  27. Fabrice Defever & Farid Toubal, 2007. "Productivity and the Sourcing Modes of Multinational Firms: Evidence from French Firm-Level Data," CEP Discussion Papers dp0842, Centre for Economic Performance, LSE.
  28. John W. Budd & Jozef Konings & Matthew J. Slaughter, 2005. "Wages and International Rent Sharing in Multinational Firms," The Review of Economics and Statistics, MIT Press, vol. 87(1), pages 73-84, February.
  29. Jan Rose Skaksen, 2004. "International outsourcing when labour markets are unionized," Canadian Journal of Economics, Canadian Economics Association, vol. 37(1), pages 78-94, February.
  30. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  31. Juan Botero & Simeon Djankov & Rafael Porta & Florencio C. Lopez-De-Silanes, 2004. "The Regulation of Labor," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 119(4), pages 1339-1382, November.
  32. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(4), pages 691-719, August.
  33. Hart, Oliver D. & Moore, John, 1990. "Property Rights and the Nature of the Firm," Scholarly Articles 3448675, Harvard University Department of Economics.
  34. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 1999. "A new database on financial development and structure," Policy Research Working Paper Series 2146, The World Bank.
  35. Nick Bloom & Raffaella Sadun & John Van Reenen, 2009. "The organization of firms across countries," LSE Research Online Documents on Economics 25481, London School of Economics and Political Science, LSE Library.
  36. Henry C. Simons, 1944. "Some Reflections on Syndicalism," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 52, pages 1.
  37. Robert C. Feenstra & Gordon H. Hanson, 2005. "Ownership and Control in Outsourcing to China: Estimating the Property-Rights Theory of the Firm," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 120(2), pages 729-761, May.
  38. repec:hrv:faseco:4784029 is not listed on IDEAS
  39. Robert J. Barro & Jong-Wha Lee, 2000. "International Data on Educational Attainment Updates and Implications," NBER Working Papers 7911, National Bureau of Economic Research, Inc.
  40. Gene M. Grossman & Elhanan Helpman, 2003. "Outsourcing Versus FDI in Industry Equilibrium," Journal of the European Economic Association, MIT Press, MIT Press, vol. 1(2-3), pages 317-327, 04/05.
  41. Jan I. Haaland & Ian Wooton, 2007. "Domestic Labor Markets and Foreign Direct Investment," Review of International Economics, Wiley Blackwell, vol. 15(3), pages 462-480, 08.
  42. Anderson, Simon P & Devereux, Michael, 1988. " Trade Unions and the Choice of Capital Stock," Scandinavian Journal of Economics, Wiley Blackwell, vol. 90(1), pages 27-44.
  43. David Hummels & Jun Ishii & Kei-Mu Yi, 1999. "The nature and growth of vertical specialization in world trade," Staff Reports 72, Federal Reserve Bank of New York.
  44. Elhanan Helpman & Oleg Itskhoki, 2010. "Labour Market Rigidities, Trade and Unemployment," Review of Economic Studies, Oxford University Press, vol. 77(3), pages 1100-1137.
  45. Strand, Jon, 2000. "Wage bargaining and turnover costs with heterogeneous labor and asymmetric information1," Labour Economics, Elsevier, vol. 7(1), pages 95-116, January.
  46. John Romalis, 2004. "Factor Proportions and the Structure of Commodity Trade," American Economic Review, American Economic Association, vol. 94(1), pages 67-97, March.
  47. Harrigan, James, 2010. "Airplanes and comparative advantage," Journal of International Economics, Elsevier, vol. 82(2), pages 181-194, November.
  48. Arijit Mukherjee, 2008. "Unionised Labour Market and Strategic Production Decision of a Multinational," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 118(532), pages 1621-1639, October.
  49. Gene M. Grossman & Elhanan Helpman, 2002. "Integration Versus Outsourcing In Industry Equilibrium," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 117(1), pages 85-120, February.
  50. Stole, Lars A & Zwiebel, Jeffrey, 1996. "Intra-firm Bargaining under Non-binding Contracts," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 63(3), pages 375-410, July.
  51. Marin, Dalia & Verdier, Thierry, 2002. "Power Inside the Firm and the Market," Discussion Papers in Economics 10, University of Munich, Department of Economics.
  52. Pierre Cahuc & André Zylberberg, 2004. "Labor Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 026203316x, December.
  53. Stole, Lars A & Zwiebel, Jeffrey, 1996. "Organizational Design and Technology Choice under Intrafirm Bargaining," American Economic Review, American Economic Association, vol. 86(1), pages 195-222, March.
  54. Ginarte, Juan C. & Park, Walter G., 1997. "Determinants of patent rights: A cross-national study," Research Policy, Elsevier, vol. 26(3), pages 283-301, October.
  55. Bronars, Stephen G & Deere, Donald R, 1991. "The Threat of Unionization, the Use of Debt, and the Preservation of Shareholder Wealth," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 106(1), pages 231-54, February.
  56. Gregory Corcos & Delphine M. Irac & Giordano Mion & Thierry Verdier, 2008. "The Determinants of Intra-Firm Trade," Development Working Papers 267, Centro Studi Luca d\'Agliano, University of Milano.
  57. McLaren, J., 1996. "'Globalization' and Vertical Structure," Discussion Papers, Columbia University, Department of Economics 1996_21, Columbia University, Department of Economics.
  58. John W. Budd & Matthew J.Slaughter, 2000. "Are Profits Shared Across Borders? Evidence on International Rent Sharing," NBER Working Papers 8014, National Bureau of Economic Research, Inc.
  59. Baldwin, Carliss Y, 1983. "Productivity and Labor Unions: An Application of the Theory of Self-Enforcing Contracts," The Journal of Business, University of Chicago Press, vol. 56(2), pages 155-85, April.
  60. Wolfgang Ochel, 2001. "Collective Bargaining Coverage in the OECD from the 1960s to the 1990s," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 2(4), pages 62-65, 02.
  61. Bronars, Stephen G & Deere, Donald R, 1993. "Unionization, Incomplete Contracting, and Capital Investment," The Journal of Business, University of Chicago Press, vol. 66(1), pages 117-32, January.
  62. Lyons, Bruce R & Sekkat, Khalid, 1991. "Strategic Bargaining and Vertical Separation," Journal of Industrial Economics, Wiley Blackwell, vol. 39(5), pages 577-93, September.
  63. Zhao, Laixun, 2001. "Unionization, vertical markets, and the outsourcing of multinationals," Journal of International Economics, Elsevier, vol. 55(1), pages 187-202, October.
  64. Horn, Henrik & Wolinsky, Asher, 1988. "Worker Substitutability and Patterns of Unionisation," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 98(391), pages 484-97, June.
  65. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Dermot Leahy & Catia Montagna, 2010. "Strategic Investment And International Outsourcing In Unionised Oligopoly," Dundee Discussion Papers in Economics 231, Economic Studies, University of Dundee.
  2. Egger, Peter & Seidel, Tobias, 2013. "Corporate taxes and intra-firm trade," European Economic Review, Elsevier, vol. 63(C), pages 225-242.
  3. Carlo Altomonte & Filippo Di Mauro & Gianmarco I. P. Ottaviano & Armando Rungi & Vincent Vicard, 2012. "Global Value Chains During the Great Trade Collapse: A Bullwhip Effect?," CEP Discussion Papers dp1131, Centre for Economic Performance, LSE.
  4. Stenbacka, Rune & Tombak, Mihkel, 2012. "Make and buy: Balancing bargaining power," Journal of Economic Behavior & Organization, Elsevier, vol. 81(2), pages 391-402.
  5. G. Cardullo & M. Conti & G. Sulis, 2012. "Sunk Capital, Unions and the Hold-Up Problem: Theory and Evidence from Sectoral Data," Working Paper CRENoS 201226, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  6. Chongvilaivan, Aekapol & Hur, Jung & Riyanto, Yohanes E., 2013. "Labor union bargaining and firm organizational structure," Labour Economics, Elsevier, vol. 24(C), pages 116-124.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:cep:cepdps:dp0963. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.