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.

Wage structure effects of international trade in a small open economy: the case of Belgium

“…These methodological differences (with respect to the present paper) may help to explain why results are not exactly the same in both studies. 24 In another closely related paper, Abraham et al (2009) analyse how increased economic integration has affected labour and product markets. Their results, based on a panel of Belgian manufacturing firms, show that important competition (particularly from low wage countries) has a negative effect on both mark-ups and union bargaining power.…”

“…Using a production function approach as Hall (1988) and Crépon et al (2007), Abraham et al (2009) try to focus simultaneously on imperfections in product and labour markets. They find that imports decrease both mark-ups and union bargaining power.…”

A North-South Trade Model of Offshoring and Unemployment

“…They find that the number of employees and operating revenue of foreign affiliates in Central and Eastern European countries relative to the domestic industry exert a negative influence on overall union bargaining power. Similar effects do not show up in studies for the U.K. and Belgium by Brock and Dobbelaere (2006), Abraham et al (2009), andBoulhol et al (2011) (who use a growth accounting framework with no distinction between skill types and efficient wage bargaining rather than right-to-manage in order to identify union bargaining power). However, Dumont et al (2012) confirm negative effects of imports from and offshoring to low-wage countries on the bargaining power of low-skilled workers for Belgium.…”

The bargaining position of low-skilled and high-skilled workers in a globalising world

“…The number of contributions that assess the impact of globalisation on unions is growing steadily (e.g., Abowd and Lemieux, 1993;Borjas and Ramey, 1995;Gaston and Trefler, 1995;Gaston, 1998;Harrison, 2002;Brock and Dobbelaere, 2006;Dumont et al, 2006;Dreher and Gaston, 2007;Abraham et al, 2009;Boulhol et al, 2011). Using different methodological approaches and data sources, most of these studies conclude that globalisation tends to reduce the bargaining power of unions.…”