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Can Deunionization Lead to International Outsourcing?

  • Kjell Erik Lommerud
  • Frode Meland
  • Odd Rune Straume

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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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1545.

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Date of creation: 2005
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Handle: RePEc:ces:ceswps:_1545
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  5. Lommerud, Kjell Erik & Meland, Frode & Straume, Odd Rune, 2003. "Globalisation and union opposition to technological change
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  8. Gene M. Grossman & Elhanan Helpman, 2002. "Outsourcing in a Global Economy," NBER Working Papers 8728, National Bureau of Economic Research, Inc.
  9. Mary Amiti & Shang-Jin Wei, 2004. "Fear of Service Outsourcing: Is It Justified?," NBER Working Papers 10808, National Bureau of Economic Research, Inc.
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  11. Mine Zeynep Senses, 2006. "The Effects of Outsourcing on the Elasticity of Labor Demand," Working Papers 06-07, Center for Economic Studies, U.S. Census Bureau.
  12. Yongmin Chen & Jota Ishikawa & Zhihao Yu, 2002. "Trade Liberalization and Strategic Outsourcing," Carleton Economic Papers 02-12, Carleton University, Department of Economics, revised Jul 2004.
  13. Lyons, Bruce R & Sekkat, Khalid, 1991. "Strategic Bargaining and Vertical Separation," Journal of Industrial Economics, Wiley Blackwell, vol. 39(5), pages 577-93, September.
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  23. David Thesmar & Mathias Thoenig, 2007. "From Flexibility to Insecurity: How Vertical Separation Amplifies Firm-level Uncertainty," Journal of the European Economic Association, MIT Press, vol. 5(6), pages 1161-1202, December.
  24. Shy, Oz & Stenbacka, Rune, 2003. "Strategic outsourcing," Journal of Economic Behavior & Organization, Elsevier, vol. 50(2), pages 203-224, February.
  25. Gene M. Grossman & Elhanan Helpman, 2002. "Integration Versus Outsourcing In Industry Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 85-120, February.
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  40. repec:hrv:faseco:4784031 is not listed on IDEAS
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