Scandinavian Working Papers in Economics

Working Papers in Economics,
University of Bergen, Department of Economics

No 15/05: Can deunionization lead to international outsourcing?

Kjell Erik Lommerud (), Frode Meland () and Odd Rune Straume ()
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Kjell Erik Lommerud: University of Bergen, Department of Economics, Postal: Hermann Fossgt. 6, N-5007 Bergen, Norway
Frode Meland: University of Bergen, Department of Economics, Postal: Hermann Fossgt. 6, N-5007 Bergen, Norway
Odd Rune Straume: Stein Rokkan Centre for Social Studies and University of Bergen, Postal: Department of Economics, Hermann Fossgt. 6,, N-5007 Bergen, Norway

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 implies higher domestic wages, reduce incentives for international outsourcing. Though somewhat surprising, this results 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.

Keywords: International outsourcing; Deunionization; Globalization

JEL-codes: F16; J51; L24

28 pages, June 5, 2005

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