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Asymmetric Labor Markets, Southern Wages, and the Location of Firms

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  • Alireza Naghavi

    (University College Dublin and CERAS)

Abstract

This paper studies the behavior of firms towards weak labor rights in developing countries (South). A less than perfectly elastic labor supply in the South gives firms oligopsonistic power tempting them to strategically reduce output to cut wages. In an open economy, competitors operating in perfectly competitive labor markets meanwhile enjoy less aggressive competitors and raise output. Finally, competition effect reduces the ex-post output of a relocating firm. These effects reduce relative profitability of the South casting doubts on traditional beliefs that multinationals are attracted to regions with lower wages. Adopting a minimum wage unambiguously enhances Southern competitiveness and welfare.

Suggested Citation

  • Alireza Naghavi, 2005. "Asymmetric Labor Markets, Southern Wages, and the Location of Firms," Working Papers 2005.17, Fondazione Eni Enrico Mattei.
    • Handle: RePEc:fem:femwpa:2005.17
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    References listed on IDEAS

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    1. Robert C. Feenstra & Gene M. Grossman & Douglas A. Irwin (ed.), 1996. "The Political Economy of Trade Policy: Papers in Honor of Jagdish Bhagwati," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061864, December.
    2. Kimberly Ann Elliott & Richard B. Freeman, 2003. "Can Labor Standards Improve under Globalization?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 338, October.
    3. Will Martin & Keith E. Maskus, 2001. "Core Labor Standards and Competitiveness: Implications for Global Trade Policy," Review of International Economics, Wiley Blackwell, vol. 9(2), pages 317-328, May.
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    5. Drusilla K. Brown & Alan V. Deardorff & Robert M. Stern, 2009. "The Effects of Multinational Production on Wages and Working Conditions in Developing Countries," World Scientific Book Chapters, in: Globalization And International Trade Policies, chapter 17, pages 623-687, World Scientific Publishing Co. Pte. Ltd..
    6. Gerda Dewit & Dermot Leahy & Catia Montagna, 2003. "Employment Protection and Globalisation in Dynamic Oligopoly," Dundee Discussion Papers in Economics 137, Economic Studies, University of Dundee.
    7. Dani Rodrik, 1998. "Has Globalization Gone Too Far?," Challenge, Taylor & Francis Journals, vol. 41(2), pages 81-94, March.
    8. 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 317-328, May.
    9. Maskus, Keith E., 1997. "Should core labor standards be imposed through international trade policy?," Policy Research Working Paper Series 1817, The World Bank.
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    Cited by:

    1. Naoto Jinji, 2012. "Factor market monopsony and international duopoly," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 21(2), pages 271-286, February.

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    More about this item

    Keywords

    Labor standards; Labor market imperfection; Oligopsony; Location of firms; Minimum wages; Strategic behavior; Multinationals; Southern welfare;
    All these keywords.

    JEL classification:

    • 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

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