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Welfare policy in the presence of unionised labour and internationally mobile firms

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  • Rocha-Akis, Silvia
  • Schöb, Ronnie

Abstract

In oligopolistic industries that are unionised and may be affected by offshoring, falling offshoring costs have a moderating effect on trade unions. They will accept lower sector wages in order to discourage mobile forms from leaving the country. Since such wages are independent of the workers' domestic outside opportunities, wage moderation - induced by deeper economic integration - creates leeway for the government to engage in redistributive policies even if this improves the workers' domestic outside options. Only if the latter become sufficiently attractive will redistribution induce some offshoring, and it is only at that level that further economic integration will lead to both wage moderation and offshoring activities. Therefore, our analysis suggests that rather than provoking a downsizing of the welfare state, offshoring defines an upper limit for the generosity of the welfare state below which redistribution becomes less instead of more distortive. --

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Bibliographic Info

Paper provided by Free University Berlin, School of Business & Economics in its series Discussion Papers with number 2009/14.

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Date of creation: 2009
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Handle: RePEc:zbw:fubsbe:200914

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Keywords: offshoring; import competition; wage bargaining; oligopoly; redistribution;

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Cited by:
  1. Silvia Rocha-Akis, 2012. "The Pain and Gain of Offshoring: The Effects of Tax Progression in a Segmented Labour Market," CESifo Working Paper Series 3739, CESifo Group Munich.
  2. Domenico Buccella, 2011. "Labor unions and economic integration: A review," Económica, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata, vol. 0, pages 25-89, January-D.

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