DP9863 Cross-border mergers and domestic-firm wages: Integrating ‘spillover effects’ and ‘bargaining effects’

Author(s): Joseph A. Clougherty, Klaus Peter Gugler, Lars Sørgard, Florian Szücs
Publication Date: March 2014
Keyword(s): bargaining, Cross-Border Mergers, FDI, spillovers, wages
JEL(s): F23, F66, J30, L21
Programme Areas: Labour Economics, Industrial Organization, International Trade and Regional Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=9863

Two literatures exist concerning cross-border merger activity’s impact on domestic wages: one focusing on spillover-effects; the other focusing on bargaining-effects. Motivated by scarce theoretical scholarship spanning these literatures, we nest both mechanisms in a single conceptual framework. Considering the separate phenomena of inward and outward cross-border merger activity, we predict that ‘bargaining’ (‘spillover’) effects are relatively more dominant under high (low) unionization rates and under high (low) degrees of relatedness. Employing US firm-level panel data on wages combined with industry-level data on unionization and merger activity (covering 1989-2001), we find support for our propositions as inward and outward cross-border merger activity generate positive spillovers to wages, but are more likely to generate firm-level wage decreases when unionization rates are high and when cross-border merger activity is best characterized as related.