Working Paper Series no. 460: The Impact of Worker Bargaining Power on the Organization of Global Firms

Abstract

We study the effect of worker bargaining power on global firms' boundaries. Our theory posits that outsourcing weakens the workers' bargaining position by limiting the revenues subject to worker extraction. Furthermore, when capital is relationship-specific, outsourcing reduces the firm's exposure to ex-post worker opportunism. Hence, worker bargaining power provides incentives for vertical fragmentation, and the more so in capital-intensive industries characterized by specific investments. Our empirical analysis relates global sourcing strategies to observable measures of worker bargaining power. We provide firm-level evidence consistent with the theoretical predictions.

Juan Carluccio and Maria Bas
November 2013

Classification JEL : F14, J51.

Keywords : worker bargaining power, labor market imperfections, outsourcing, multinational firms.