The effect of globalization on union bargaining and price-cost margins of firms

Abstract

Abstract:In recent years, Europe has witnessed an accelerated process of economic integration. Trade barriers were removed, the euro was introduced and ten new member states have joined the European Union. This paper analyzes how this process of increased economic integration has affected labor and product markets. To this end, we use a panel of Belgian manufacturing firms to estimate price-cost margins and union bargaining power and show how various measures of globalization affect them.Our findings can be summarized as follows: On average, firms set prices about 30% above marginal costs, but there is substantial variation across sectors, with the lowest mark-up around 19% and the highest around 52%. In addition, we find evidence that unions bargain over both wages and employment. We estimate an index of bargaining power, which reflects the fraction of profits that is passed on to workers into higher wages. Depending on the sector, this fraction varies between 6% and 18% and it increases with the markups of firms. Finally, we find that globalization puts pressure on both markups and union bargaining power, especially when there is increased competition from the low wage countries. This suggests that increased globalization is associated with a moderation of wage claims in unionized countries, which should be associated with positive effects on employment.

The German Labour Market Reforms in a European Context: A DSGE Analysis

“…Recent literature suggests that globalization has been one of the drivers of the decline in union membership and thus lower bargaining power of unions (see, e.g., Dreher and Gaston (2007) and Abraham, Konings, and Vanormelingen (2009)). In Europe, this trend has been further strengthened by the eastward expansion of the European Union in 2004, which took place simultaneously with the Hartz reforms.…”

Panel Data Estimates Of The Production Function And Product And Labor Market Imperfections

“…Following this second approach and using a large panel data sample of French manufacturing …rms, this paper on the one hand extends the framework of our previous work and on the other hand provides a detailed analysis of product and labor market imperfections as two major sources of discrepancies between input factor prices and marginal productivities. Thus it also contributes to the econometric literature on estimating 1 For theoretical contributions on this issue, we refer to Nickell (1999) and Blanchard and Giavazzi (2003).…”

Productivity, Price- and Wage-Markups: An Empirical Analysis of the Dutch Manufacturing Industry

“…Among others, Bughin (1993Bughin ( , 1996, Dobbelaere (2004), Galí et al (2007), Abraham et al (2009), Crépon et al (2010), and Dobbelaere and Mairesse (2013) consider the possibility of imperfections in both product and factor markets, by taking into account the fact that wages are no longer exogenous. Bughin (1993), studying the Belgian chemical industry (and four Belgian manufacturing sectors in Bughin (1996)), considers imperfections in product and factor markets, but does not provide insights about the unobserved productivity.…”

“…Also in Dobbelaere (2004), Crépon et al (2010), and in Dobbelaere and Mairesse (2013), the main focus is the heterogeneity in price-cost markup and workers' bargaining power parameters, rather than on productivity and endogeneity issues. Abraham et al (2009), using Belgian firm-level data, simultaneously estimate price-cost margins and unions bargaining power to analyze how price setting and bargaining power are affected by globalization. Although Abraham et al (2009) apply the Olley and Pakes (1996) method to deal with the simultaneity issue, they do not correct for the unavailability of physical output volumes, replacing the volumes of productions with deflated firm-level sales.…”

“…Abraham et al (2009), using Belgian firm-level data, simultaneously estimate price-cost margins and unions bargaining power to analyze how price setting and bargaining power are affected by globalization. Although Abraham et al (2009) apply the Olley and Pakes (1996) method to deal with the simultaneity issue, they do not correct for the unavailability of physical output volumes, replacing the volumes of productions with deflated firm-level sales. The omission of the output price might lead to correlation between the input choices and the productivity shock, yielding biased estimated coefficients.…”