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Cross-Border Mergers and Domestic Wages: Integrating Positive 'Spillover' Effects and Negative 'Bargaining' Effects

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Author Info

  • Joseph A. Clougherty

    ()
    (University of Illinois at Urbana-Champaign and CEPR-London)

  • Klaus Gugler

    ()
    (Department of Economics, Vienna University of Economics and Business)

  • Lars Sørgard

    ()
    (Department of Economics, Norwegian School of Economics)

Abstract

The existing literature concerning the impact of cross-border merger activity on domestic wages can be split into two camps: 1) those focusing on positive ‘spillover’ effects; 2) those focusing on negative ‘bargaining’ effects. Motivated in part by the lack of scholarship spanning these two literatures, we provide a theoretical model that nests these two mechanisms in one conceptual framework. From our theoretical model we are able to predict that ‘spillover’ effects tend to be more dominant under low unionization rates, while ‘bargaining’ effects tend to be more dominant under high unionization rates; furthermore, ‘spillover’ effects tend to be more dominant with inward cross-border mergers, while ‘bargaining’ effects tend to be more dominant with outward cross-border mergers. We employ comprehensive panel data on wages, unionization and merger activity for US industry sectors over the 1986-2001 period in order to test the impact of cross-border merger activity on domestic wages. We find support for our propositions in that higher unionization rates make it more likely that cross-border mergers generate wage decreases, while outward cross-border mergers more likely involve wage decreases than do inward cross-border mergers.

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Bibliographic Info

Paper provided by Vienna University of Economics, Department of Economics in its series Department of Economics Working Papers with number wuwp136.

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Date of creation: Apr 2012
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Handle: RePEc:wiw:wiwwuw:wuwp136

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Keywords: International mergers; wages; unionisation;

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