The effect of international firm mobility on wages and unemployment

Cross-Border Mergers and Domestic Wages: Integrating Positive ‘Spillover’ Effects and Negative ‘Bargaining’ Effects

“…Thus, a sizeable theoretical literature exists -e.g., Mezetti and Dinopoulos (1991), Zhao (1995, 1998), Bughin and Vannini (1995, Skaksen and Sørensen (2001), Straume (2003), Lommerud et al (2003;2005;2006), Eckel andEgger (2009), andFarrell (2009) -formalizing the idea that FDI in the mode of cross-border M&As or direct investments allows firms to play off one group of workers against another. Yet to the best of our knowledge, only three studies bring some evidence to bear on the empirical robustness of the negative 'bargaining' effects mechanism.…”

“…In Mezzetti and Dinopoulos (1991), only the domestic market is unionized, and they find that a credible threat to move production abroad lowers negotiated domestic wages. In Eckel andEgger (2009) andFarrell (2009), the negative bargaining effect is also present in a two-country model with the possibility of FDI, but general equilibrium mechanisms might counteract the direct bargaining effect. Finally, Skaksen and Sørensen (2001) also find a negative bargaining effect when products are substitutes (as in our model).…”

“…First, the negative bargaining effects literature consists almost entirely of theoretical studies. As lamented by a few scholars (e.g., Choi, 2001;Lommerud et al, 2006;Braun, 2008), the literature suffers from a lack of empirical testing concerning the idea that cross-border 2 While Mezetti and Dinopoulos (1991) and Freeman (1995) were amongst the first to analyze this threat to domestic wages, a great deal of scholarship has followed in this tradition: e.g., Zhao (1995Zhao ( , 1998, Bughin and Vannini (1995), Choi (2001), Skaksen and Sørensen (2001), Straume (2003), Fabbri et al (2003), Lommerud et al (2003;2005;2006), Braun and Scheffel (2007), Braun (2008), Eckel andEgger (2009), andFarrell (2009). 3 First, Goodyear Tire and Rubber Co. announced during a major steelworkers strike in North America that it could fall back on the production of foreign subsidiaries to soften the strike's impact.…”