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Can deunionization lead to international outsourcing?

  • Lommerud, Kjell Erik
  • Meland, Frode
  • Straume, Odd Rune

We analyze unionized firms' incentives to outsource intermediate goods production to foreign (low-cost) subcontractors. Such outsourcing leads to increased wages for the remaining in-house production. We find that stronger unions, which imply higher domestic wages, reduce incentives for international outsourcing. Though somewhat surprising, this result provides a theoretical reconciliation of the empirically observed trends of deunionization and increased international outsourcing in many countries. We further show that globalization - interpreted as either market integration or increased product market competition - will increase incentives for international outsourcing.

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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 77 (2009)
Issue (Month): 1 (February)
Pages: 109-119

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Handle: RePEc:eee:inecon:v:77:y:2009:i:1:p:109-119
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