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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 conciliation 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 C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6998.

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Date of creation: Oct 2008
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Handle: RePEc:cpr:ceprdp:6998
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