Wage bargaining and multinational firms

Carsten Eckel and Hartmut Egger ()

Munich Reprints in Economics from University of Munich, Department of Economics

Abstract: We set up a general equilibrium model with heterogeneous firms to study the interaction between wage bargaining and foreign direct investment. Thereby, we highlight the incentives of firms to invest abroad in order to improve their bargaining position vis-á-vis local unions and we show how changes in the bargaining power of unions affect the share of multinational firms in an open economy. In addition, taking into account this relationship between wage bargaining and foreign direct investment, our analysis provides novel insights on how labor income and the unemployment rate adjust to economic integration and how changes in the bargaining power of unions affect these two labor market variables.

Date: 2009
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Published in Journal of International Economics 2 77(2009): pp. 206-214

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