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Title: The effect of globalization on union bargaining and price-cost margins of firms
Authors: Abraham, Filip
Konings, Joep
Vanormelingen, Stijn
Issue Date: 2007
Publisher: KU Leuven
Series Title: LICOS Discussion Paper 181
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.
Publication status: published
KU Leuven publication type: IR
Appears in Collections:Center for Research on Economic Markets and their Environments - HUB-EHSAL
Faculty of Economics and Business (FEB) - miscellaneous
Research Center of International Economics @ Leuven
Research Center of Monetary and Information Economics @ Leuven
LICOS - Centre for Institutions and Economic Performance @ Leuven

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