Leahy, Dermot and Montagna, Catia
(2012)
Strategic investment and international outsourcing in unionised oligopoly.
Labour Economics, 19 (2).
pp. 260-269.
ISSN 0927-5371
Abstract
We develop an oligopoly model in which
fi
rms 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-speci
fi
c 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.
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