Working Paper: CEPR ID: DP7867
Authors: Maria Bas; Juan Carluccio
Abstract: Do variations in labor market institutions across countries affect the cross-border organization of the firm? Using firm-level data on multinationals located in France, we show that firms are more likely to outsource the production of intermediate inputs to external suppliers when importing from countries with empowered unions. Moreover, this effect is stronger for firms operating in capital-intensive industries. We propose a theoretical mechanism that rationalizes these findings. The fragmentation of the value chain weakens the union?s bargaining position, by limiting the amount of revenues that are subject to union extraction. The outsourcing strategy reduces the share of surplus that is appropriated by the union, which enhances the firm?s incentives to invest. Since investment creates relatively more value in capital-intensive industries, increases in union power are more likely to be conducive to outsourcing in thoseindustries. Overall, our findings suggest that multinational firms use their organizational structure strategically when sourcing intermediate inputs from unionized markets.
Keywords: multinational firms; sourcing; trade unions; wage bargaining
JEL Codes: F10; J52; L22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Union power (J51) | Outsourcing of production (L23) |
| Union power (J51) | Share of intrafirm imports (F23) |
| Union power in capital-intensive industries (L69) | Outsourcing (L24) |
| Union power (J51) | Fragmentation of the value chain (F12) |
| Fragmentation of the value chain (F12) | Bargaining position of unions (J52) |
| Bargaining position of unions (J52) | Surplus appropriated by the union (H62) |
| Surplus appropriated by the union (H62) | Firms' incentives to invest (D25) |