The Effect of Globalization on Union Bargaining and Price-Cost Margins of Firms

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: LICOS Discussion Paper ; No. 181

Classification and Topics

• Classification: Wirtschaft ; Trade and Labor Market Interactions ; Labor-Management Relations, Trade Unions, and Collective Bargaining: General ; Oligopoly and Other Imperfect Markets
• Subject: Mark-ups ; Trade Unions ; International Trade ; Europäische Wirtschafts- und Währungsunion ; Arbeitsmarkt ; Handelsregionalismus ; Betriebliche Preispolitik ; Gewerkschaftspolitik ; Gewerkschaftsmitgliedschaft ; Schätzung ; Verarbeitendes Gewerbe ; Belgien

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Abraham, Filip ; Konings, Jozef ; Vanormelingen, Stijn
• Event: Veröffentlichung
• (who): Katholieke Universiteit Leuven, LICOS Centre for Institutions and Economic Performance
• (where): Leuven
• (when): 2007

Further information

• Handle: http://hdl.handle.net/10419/75058
• Last update: 10.03.2025, 11:44 AM CET