Leahy, Dermot

Montagna, Catia

English

We critically consider the conventional belief that the attractiveness of international outsourcing lies in cheaper labour costs overseas and that it offers a means to ‘escape’ the power of unions. We develop an oligopoly model in which firms facing unionised domestic labour market choose between producing an intermediate in-house or outsourcing it to a non-unionised foreign supplier that makes a relationship specific investment in developing the intermediate. We show that outsourcing typically results in higher wages and does not always reduce marginal costs. Trade liberalisation favours outsourcing particularly for the relatively less efficient firms

University of Dundee Online Publications

Dundee Discussion Papers in Economics 231:Strategic investment and international outsourcing in unionised oligopoly

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Dundee Discussion Papers in Economics 231:Strategic investment and international outsourcing in unionised oligopoly

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University of Dundee Online Publications

University of Dundee Online Publications