Date Added: Nov 2009
Do variations in labor market institutions across countries affect the cross-border organization of the firm? Using firm-level data on multinationals located in France, the authors show that firms are more likely to outsource the production of intermediate inputs to external suppliers when importing from countries with empowered unions. Moreover, this effect is stronger for firms operating in capital-intensive industries. They authors propose a theoretical mechanism that rationalizes these findings. The fragmentation of the value chain weakens the union's bargaining position, by limiting the amount of revenues that are subject to union extraction.