The impact of worker bargaining power on the organization of global firms ¬リニ

c Centre d'études prospectives et d'informations internationales (CEPII), France a b s t r a c t a r t i c l e i n f o JEL classification: F14 F23 J5 Keywords: Worker bargaining power Labor market imperfections Outsourcing Multinational firms Do variations in labor market institutions affect the cross-border organization of the firm? Using firm-level data on multinationals located in France, we show that firms are more likely to outsource the production of intermediate inputs to external suppliers when importing from countries with high worker bargaining power. This effect is stronger for firms operating in capital-intensive and differentiated industries. We propose a theoretical mechanism that rationalizes these findings. The fragmentation of the value chain weakens the workers' bargaining position , by limiting the amount of revenues that are subject to union extraction. The outsourcing strategy reduces the share of surplus that is appropriated by the union, which enhances the firm's incentives to invest. Since investment creates relatively more value in capital-intensive industries, increases in worker bargaining power are more likely to be conducive to outsourcing in those industries. Overall, our findings suggest that global firms choose their organizational structure strategically when sourcing intermediate inputs from markets where worker bargaining power is high. The globalization process is characterized by increasing international specialization of production and the organization of firms' activities on a global scale. Around one-third of total trade takes place within multinational firms' boundaries, with developed countries posting an even larger proportion. Furthermore, trade in intermediate inputs has risen steadily in recent decades to become a key feature of the current international trade structure (Hummels et al., 2001). In this context, the study of global production networks naturally attracted a great deal of attention. In this paper we ask how the cross-border organization of firms is affected by bargaining in the labor market. We are interested in the way the bargaining power of workers in host countries affects sourcing decisions by multinational firms. We present an empirical analysis based on a unique firm-level dataset on the sourcing modes of multinationals located in France. An important feature of these data is that they provide the proportion of intra-firm imports for each firm, seller-industry, and country-of-origin triplet. We use an index developed in Botero et al. (2004) that captures the power of workers by means of the extent to which industrial action is allowed by the law. Our results …