Can Deunionization Lead to International Outsourcing?

35 Pages Posted: 2 Dec 2008

See all articles by Kjell Erik Lommerud

Kjell Erik Lommerud

University of Bergen - Department of Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Frode Meland

University of Bergen - Department of Economics

Odd Rune Straume

University of Minho - Economic Policies Research Unit (NIPE); CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 2 versions of this paper

Date Written: October 2008

Abstract

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.

Keywords: Deunionization, Globalization, International outsourcing

JEL Classification: F16, J51, L24

Suggested Citation

Lommerud, Kjell Erik and Meland, Frode and Straume, Odd Rune, Can Deunionization Lead to International Outsourcing? (October 2008). CEPR Discussion Paper No. DP6998, Available at SSRN: https://ssrn.com/abstract=1308069

Kjell Erik Lommerud (Contact Author)

University of Bergen - Department of Economics ( email )

Fosswinckelsgt. 6
N-5007 Bergen, 5007
Norway
+47 5 558 9209 (Phone)
+47 5 558 9210 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Frode Meland

University of Bergen - Department of Economics ( email )

Fosswinckelsgt. 6
N-5007 Bergen, 5007
Norway
+47 5 558 9230 (Phone)
+47 5 558 9210 (Fax)

Odd Rune Straume

University of Minho - Economic Policies Research Unit (NIPE) ( email )

Campus de Gualtar
Braga, 4710-057
Portugal

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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