Strategic investment and international outsourcing in unionised oligopoly

TY - JOUR

T1 - Strategic investment and international outsourcing in unionised oligopoly

AU - Leahy, D.

AU - Montagna, Catia

N1 - Copyright 2012 Elsevier B.V., All rights reserved.

PY - 2012/4

Y1 - 2012/4

N2 - We develop an oligopoly model in which firms facing unionised domestic labour markets choose between producing an intermediate good in-house and outsourcing it to a non-unionised foreign supplier that makes a relationship-specific investment in developing the intermediate. The paper sheds light on the issue of whether international outsourcing offers a means to 'escape' the power of domestic unions and on the existence of intra-industry wage dispersion. We show that outsourcing typically increases marginal costs even when it lowers union wages. Despite this, more powerful unions increase the incentive to outsource.

AB - We develop an oligopoly model in which firms facing unionised domestic labour markets choose between producing an intermediate good in-house and outsourcing it to a non-unionised foreign supplier that makes a relationship-specific investment in developing the intermediate. The paper sheds light on the issue of whether international outsourcing offers a means to 'escape' the power of domestic unions and on the existence of intra-industry wage dispersion. We show that outsourcing typically increases marginal costs even when it lowers union wages. Despite this, more powerful unions increase the incentive to outsource.

UR - https://www.scopus.com/pages/publications/84857232416

U2 - 10.1016/j.labeco.2011.11.003

DO - 10.1016/j.labeco.2011.11.003

M3 - Article

AN - SCOPUS:84857232416

SN - 0927-5371

VL - 19

SP - 260

EP - 269

JO - Labour Economics

JF - Labour Economics

IS - 2

ER -