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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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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2005/wp-cesifo-2005-09/cesifo1_wp1545.pdf
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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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