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Threat Effect of Foreign Direct Investment on Labor Union Wage Premium

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Minsik Choi
Abstract

This paper explores the impact of “threat effects” of foreign direct investment on labor markets in the United States. In this context, the term “threat effect” refers to the use by employers of the implicit or explicit threat that they will move all or part of their production to a different location, even if they do not actually do so. In this paper, I construct a unique industry level panel data set and I show that the union wage premium has been negatively associated with the stock of outward FDI in the U.S. manufacturing sector for the period of 1983-1996. The union wage premium is chosen as the dependent variable to test the hypothesis that the increased capital mobility changes the nature of bargaining between workers and employers as predicted in threat effect theory.

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Paper provided by Political Economy Research Institute, University of Massachusetts at Amherst in its series Working Papers with number wp27.

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Date of creation: 2001
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Handle: RePEc:uma:periwp:wp27

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  1. Gauthier Lanot & Ian Walker, 1996. "The Union/Non-Union Wage Differential: An Application of Semi-Parametric Methods," Keele Department of Economics Discussion Papers (1995-2001) 96/9, Department of Economics, Keele University.
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  2. William T. Dickens & Lawrence F. Katz, 1987. "Interindustry Wage Differences and Industry Characteristics," NBER Working Papers 2014, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Robert C. Feenstra & Gordon H. Hanson, 1996. "Globalization, Outsourcing, and Wage Inequality," NBER Working Papers 5424, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Bughin, Jacques & Vannini, Stefano, 1995. "Strategic direct investment under unionized oligopoly," International Journal of Industrial Organization, Elsevier, vol. 13(1), pages 127-145, March. [Downloadable!] (restricted)
  5. Steven G. Allen, 1996. "Technology and the Wage Structure," NBER Working Papers 5534, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. John M. Abowd & Thomas Lemieux, 1990. "The Effects of International Competiton on Collective Bargaining Outcomes: A Comparison of the United States and Canada," NBER Working Papers 3352, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Manning, Alan, 1987. "An Integration of Trade Union Models in a Sequential Bargaining Framework," Economic Journal, Royal Economic Society, vol. 97(385), pages 121-39, March. [Downloadable!] (restricted)
  8. Lawrence F. Katz & Lawrence H. Summers, 1989. "Can Inter-Industry Wage Differentials Justify Strategic Trade Policy?," NBER Working Papers 2739, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. David A. Macpherson & James B. Stewart, 1990. "The effect of international competition on union and nonunion wages," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 43(4), pages 434-446, April.
  10. Richard J. Cebula & Usha Nair-Reichert, 2000. "Union Rent Seeking and Import Competition in U.S. Manufacturing," Journal of Labor Research, Transaction Publishers, vol. 21(3), pages 477-487, July. [Downloadable!] (restricted)
  11. Gaston, Noel & Trefler, Daniel, 1995. "Union wage sensitivity to trade and protection: Theory and evidence," Journal of International Economics, Elsevier, vol. 39(1-2), pages 1-25, August. [Downloadable!] (restricted)
  12. 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.
  13. John M. Abowd & Richard B. Freeman, 1991. "Immigration, Trade and the Labor Market," NBER Books, National Bureau of Economic Research, Inc, number abow91-1.
  14. Freeman, Richard B, 1995. "Are Your Wages Set in Beijing?," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 15-32, Summer. [Downloadable!] (restricted)
  15. Card, David, 1996. "The Effect of Unions on the Structure of Wages: A Longitudinal Analysis," Econometrica, Econometric Society, vol. 64(4), pages 957-79, July. [Downloadable!] (restricted)
  16. Borjas, George J, 1987. "Self-Selection and the Earnings of Immigrants," American Economic Review, American Economic Association, vol. 77(4), pages 531-53, September. [Downloadable!] (restricted)
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  17. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December. [Downloadable!] (restricted)
  18. Gordon H. Hanson & Raymond J. Mataloni, Jr. & Matthew J. Slaughter, 2001. "Expansion Strategies of U.S. Multinational Firms," NBER Working Papers 8433, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  19. Zhao, Laixun, 1995. "Cross-hauling direct foreign investment and unionized oligopoly," European Economic Review, Elsevier, vol. 39(6), pages 1237-1253, June. [Downloadable!] (restricted)
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  1. Stephanie Seguino, 2005. "Gender Inequality in a Globalizing World," Industrial Organization 0507005, EconWPA. [Downloadable!]
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  2. Brännlund, Runar & Nordström, Jonas & Svedin, Dick, 2004. "Foreign ownership and effects on employment and wages: The case of Sweden," UmeÃ¥ Economic Studies 638, Umeå University, Department of Economics, revised 01 Nov 2004. [Downloadable!]
  3. Stephanie Seguino, 2005. "Is More Mobility Good? Firm Mobility and the Low Wage-Low Productivity Trap," International Trade 0505008, EconWPA. [Downloadable!]
    Other versions:
  4. Anastasia Guscina, 2007. "Effects of Globalization on Labor's Share in National Income," IMF Working Papers 06/294, International Monetary Fund. [Downloadable!]
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