Asymmetric labor markets and the location of firms: Are multinationals attracted to weak labor standards?

Arbeitspapier

This paper studies the strategic behavior of multinationals towards weak labor standards in developing countries (South). Without a marginal cost pricing policy, abundant labor in the South gives firms the power to set wages through their choice of output. A strategic reduction in output offsets or weakens direct gains from lower wages. In an open economy, it also increases output and profits of a competitor that operates in a perfect labor market. These effects lower profitability of locating in the South casting doubts on traditional beliefs that multinationals are always attracted to lower wages. Adopting standards enhances Southern welfare unambiguously.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Centre for Economic Research Working Paper Series ; No. WP03/23

Classification and Topics

• Classification: Wirtschaft ; Labor Standards: General ; Multinational Firms; International Business ; Monopsony; Segmented Labor Markets ; Models of Trade with Imperfect Competition and Scale Economies; Fragmentation ; Production Analysis and Firm Location: Government Policy ; Oligopoly and Other Imperfect Markets
• Subject: Labor standards ; Labor market imperfection ; Oligopsony ; Location of firms ; Wages ; Strategic behavior ; Multinationals ; Welfare

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Naghavi, Alireza
• Event: Veröffentlichung
• (who): University College Dublin, Department of Economics
• (where): Dublin
• (when): 2003

Further information

• Handle: http://hdl.handle.net/10419/72312
• Last update: 10.03.2025, 11:44 AM CET