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Strategic sourcing and wage bargaining

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  • Sly, Nicholas
  • Soderbery, Anson

Abstract

We examine how multinational firms strategically source production to mitigate the consequences of wage bargaining with workers. When wage bargaining pressure differs across countries, firms allocate production of goods with high markups toward countries with relatively competitive labor markets, limiting the rents available to workers with strong bargaining power. We use product-level data from the universe of automotive production facilities in North America at a monthly frequency between 1988 and 2009 to structurally estimate variable price elasticities of demand for different vehicles. From the theory we derive an empirical strategy that allows us to distinguish the impact of wage bargaining pressure from other sourcing motives. We find robust evidence that multinational firms strategically source their products across countries in response to differences in wage bargaining pressure.

Suggested Citation

  • Sly, Nicholas & Soderbery, Anson, 2014. "Strategic sourcing and wage bargaining," Journal of Development Economics, Elsevier, vol. 109(C), pages 172-187.
  • Handle: RePEc:eee:deveco:v:109:y:2014:i:c:p:172-187
    DOI: 10.1016/j.jdeveco.2014.04.005
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    Cited by:

    1. Hummels, David & Munch, Jakob R. & Xiang, Chong, 2016. "Offshoring and Labor Markets," IZA Discussion Papers 9741, Institute for the Study of Labor (IZA).
    2. Quan Dong & Juan Carlos Bárcena-Ruiz & María Begoña Garzón, 2015. "Restrictions on Foreign Investments and the Relocation of Firms," Australian Economic Papers, Wiley Blackwell, vol. 54(4), pages 250-265, December.
    3. Bandyopadhyay, Subhayu & Basu, Arnab K. & Chau, Nancy H. & Mitra, Devashish, 2016. "Disentangling the Wage Impacts of Offshoring on a Developing Country: Theory and Policy," IZA Discussion Papers 9973, Institute for the Study of Labor (IZA).
    4. repec:eee:reecon:v:71:y:2017:i:3:p:564-587 is not listed on IDEAS
    5. Bandyopadhyay, Subhayu & Basu, Arnab K. & Chau, Nancy H. & Mitra, Devashish, 2016. "Offshoring in Developing Countries: Labor Market Outcomes, Welfare, and Policy," Working Papers 2016-11, Federal Reserve Bank of St. Louis, revised 01 Apr 2017.

    More about this item

    Keywords

    Strategic sourcing; Wage bargaining; Price markups; Multiproduct firms;

    JEL classification:

    • F1 - International Economics - - Trade
    • F2 - International Economics - - International Factor Movements and International Business
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • L6 - Industrial Organization - - Industry Studies: Manufacturing

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