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Outsourcing and Unionisation: A tale of misallocated (resistance) resources

By Elisabetta Magnani and David Prentice

Abstract

Is there any glue that may tie together the future of US unionism and the trend towards disintegration of the firm? This paper addresses this question by investigating the effect of outsourcing on US unionisation. Using a new dataset for the US manufacturing sector from 1973 to 1994, we quantify the effect of outsourcing on 3-digit industries quasi-rents, employment, union wage premia and union densities. Instrumental Variables estimation techniques show that outsourcing has contributed to higher quasi-rents and increased quasi-rents per plant and industry employment. While the premium of substitutable workers is not affected by the extent of outsourcing, we find evidence that unionised workers employed in jobs that are not substitutes of the tasks being outsourced gain from outsourcing. Finally, we find no support to the claim that outsourcing reduces union density. This set of results sharply contrasts with the dominant view according to which internal labour markets (and unionisation) have little to gain from market mediated employment arrangements.

OAI identifier: oai:RePEc:ltr:wpaper:2006.03
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