Discussion paper

DP6998 Can Deunionization Lead to International Outsourcing?

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 imply higher domestic wages, reduce incentives for international outsourcing. Though somewhat surprising, this result provides a theoretical conciliation 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.


Lommerud, K and F Meland (2008), ‘DP6998 Can Deunionization Lead to International Outsourcing?‘, CEPR Discussion Paper No. 6998. CEPR Press, Paris & London. https://cepr.org/publications/dp6998