Flexibility in Wage Setting Under the Threat of Relocation

Anna Goeddeke, Justus Haucap, Annika Herr and Christian Wey

LABOUR, 2018, vol. 32, issue 1, 1-22

Abstract: Relocation of production to countries with low labour costs has induced increased labour market flexibility, which has been praised as a silver bullet for economic growth and low unemployment. Within a unionised oligopoly framework, in which a multinational firm has the option to relocate its production to a foreign country, we analyse the welfare implications of both centralised and flexible wage†setting regimes. For very low foreign wages, wage flexibility leads to higher welfare than a rigid centralised regime. In contrast, for ‘intermediate’ wage levels in the foreign country, an industry†wide uniform wage leads to higher social welfare than flexible wages.

Date: 2018
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https://doi.org/10.1111/labr.12118

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Working Paper: Flexibility in wage setting under the threat of relocation (2017)
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