The effect of globalization on union bargaining and price-cost margins of firms
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Date
2007-01
Authors
Abraham, Filip
Konings, Jozef
Vanormelingen, Stijn
Journal Title
Journal ISSN
Volume Title
Publisher
LICOS Centre for Institutions and Economic Performance
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.
Description
Keywords
mark-ups, trade unions, international trade, Research Subject Categories::SOCIAL SCIENCES::Business and economics
Citation
Abraham Filip, Konings Jozef, Vanormelingen Stijn, 2007, LICOS Centre for Institutions and Economic Performance; The effect of globalization on union bargaining and price-cost margins of firms. http://nur.nu.edu.kz/handle/123456789/1895