Flexible Outsourcing and the Impacts of Labour Taxation in European Welfare States

Transcription

1 DISCUSSION PAPER SERIES IZA DP No Flxil Ououring nd h Imp o our Txion in Europn Wlr S Erkki Kokl Pnu Pouvr Spmr 8 Forhunginiu zur Zukun dr Ari Iniu or h Sudy o or

2 Flxil Ououring nd h Imp o our Txion in Europn Wlr S Erkki Kokl Univriy o linki nd IZA Pnu Pouvr Univriy o linki nd IZA Diuion Ppr No Spmr 8 IZA P.O. Box Bonn Grmny Phon: Fx: E-mil: iz@iz.org Any opinion xprd hr r ho o h uhor nd no ho o IZA. Rrh pulihd in hi ri my inlud vi on poliy, u h iniu il k no iniuionl poliy poiion. Th Iniu or h Sudy o or IZA in Bonn i lol nd virul inrnionl rrh nr nd pl o ommuniion n in, polii nd uin. IZA i n indpndn nonproi orgnizion uppord y Duh Po World N. Th nr i oid ih h Univriy o Bonn nd or imuling rrh nvironmn hrough i inrnionl nork, orkhop nd onrn, d rvi, proj uppor, rrh vii nd doorl progrm. IZA ngg in i originl nd inrnionlly ompiiv rrh in ll ild o lor onomi, ii dvlopmn o poliy onp, nd iii diminion o rrh rul nd onp o h inrd puli. IZA Diuion Ppr on rprn prliminry ork nd r iruld o nourg diuion. Ciion o uh ppr hould oun or i proviionl hrr. A rvid vrion my vill dirly rom h uhor.

3 IZA Diuion Ppr No Spmr 8 ABSTRACT Flxil Ououring nd h Imp o our Txion in Europn Wlr S In Europn Wlr S, unkilld orkr r ypilly unionizd, hil h g ormion o killd orkr i mor ompiiv. To ou on hi p, nlyz ho lxil inrnionl ououring nd lour xion g ormion, mploymn nd lr in dul domi lour mrk. ighr produiviy o ououring, lor o o ououring nd lor or pri o ououring inr g diprion n h killd nd unkilld orkr. Inring g x progrion o unkilld orkr dr h g r nd inr h lour dmnd o unkilld orkr. I dr h lr o unkilld orkr nd inr oh h lr o killd orkr nd h proi o irm. JE Cliiion: E4,, J, J3, J5 Kyord: lxil ououring, dul lour mrk, imp o lour xion, lr Corrponding uhor: Erkki Kokl Dprmn o Eonomi Univriy o linki P.O. Box 7 Arkdinku 7 4 linki Finlnd E-mil: rkki.kokl@hlinki.i

4 I. Inroduion Europn Wlr S r hrrizd y dul lour mrk. Unkilld orkr r ypilly unionizd, hil killd orkr on ngoi on hir g individully, nd, hu, mor ompiiv g ormion. iorilly, lour union hv n l o puh or rlivly high g o unkilld orkr, h o o highr unmploymn in Coninnl Europ hn in h Unid S.g. Frmn nd Shk. During h l h nury nd hi dd, glolizion h pu h Europn lr modl undr inring prur. Wg dirn ro ounri oniu nrl xplnion or h inring dominn uin pri o inrnionl ououring ro id rng o induri.g. Sinn 7 or n ovrvi nd Snov 6 onrning h E-W dihoomy o ououring. Whn ououring nd domi lour r uiu, h dmnd or domi homognou lour i dring nd i g liiy i inring in h hr o ououring.g. Sn 6 or mpiril vidn. Thi limi h mrk-up rd union n ov h opporuniy o o lour. Ououring n k o lrniv orm. Firm my ri long-rm onr h ix h moun o ououring or h rd union h g, i.. rgi ououring, or lrnivly irm my lxil nough o did upon h moun o ououring iviy imulnouly ih domi lour dmnd r h domi g i y h rd union. In h o homognou domi lour h imp o lour x poliy rorm hv n nlyzd in Kokl nd Shö 8 oh in h o rgi nd lxil ououring. W nlyz h o inrnionl ououring nd g xion on dul domi lour mrk y uming h h unkilld orkr r unionizd, hil h g o killd orkr r drmind ompiivly. In Kokl nd Pouvr orovr, Amii nd Wi 5 ll Rihi nd Sxn 4 mphiz h ig dirn in lour o h min xplnion or h rong inr in ououring o oh mnuuring nd rvi o ounri ih lo lour o. Thr r om ppr h nlyz h o ououring hn lour i hrognou, lik Dvidon l. 7 nd Dvidon l. 8. ovr, h ppr nlyz lour mrk riion h ri ih rh, hil ou on h rol o lour union. Impornly, h

5 8 hv umd h ououring in hi kind o dul domi lour mrk i rgi, u no udy ho lxil ououring nd lour xion g ormion, mploymn nd lr in dul domi lour mrk. W u produion union hr ououring i omplmnry or domi killd lour nd uiul o domi unkilld lour. W ho h in h prn o lxil ououring h on g liiy nd h ro g liiy or h unkilld lour dmnd dpnd ngivly on h o o ououring, nd on h or pri o ououring nd poiivly on h pyroll x, nd h on g liiy nd h ro g liiy or h killd lour dmnd r indpndn o h o o ououring nd h pyroll x. W lo ind h h ououring liii r onn ih rp o h unkilld g, h pyroll x, h produiviy o ououring nd h o o ououring. Whn h highkilld g dju o quliz lour dmnd nd lour upply, h killd g dpnd ngivly on h unkilld g nd h pyroll x. Th killd g i indpndn o h killd g x prmr in h o killd orkr Co- Dougl uiliy union. orovr, h killd g dpnd on h o o ououring nd o h produiviy o ouourd produion indirly, hrough i on unkilld g. Th ron or hi i h killd nd unkilld lour r omplmn, o h unkilld g ho muh unkilld lour inpu irm n o mploy. ovr, hr i no dir link rom ououring o nd ououring produiviy prmr o killd g. In h prn o lxil ououring h lor o o ououring, h lor or pri o ououring nd h highr produiviy o ouourd produion ill dr h g or h unkilld lour nd inr h g or h killd lour, hry induing highr g diprion. Th highr unkilld g x r ill inr h g or h unkilld lour nd dr h g or killd lour nd h highr unkilld g x xmpion ill dr h g or h unkilld lour nd ill inr h g or h killd lour. Similr quliiv ri in h o lour xion my dir vn quliivly n modl ih lour union nd ih rh rld mploymn.g. Pirid 998 onrning h nlyi o hi iu in h n o ououring. 3

6 n o ououring. Wih lxil ououring, h highr pyroll x or h irm ill dr h g or h unkilld nd killd lour. In h n o ououring, h highr pyroll x or h irm ill dr h g or h killd lour, u h no on h g o unkilld lour. Inring h g x nd h x xmpion or h unkilld orkr o kp h rliv urdn pr orkr onn impli highr dgr o x progrion. Thi ill dr h g r nd inr lour dmnd o unkilld orkr, hil i ill hv no on h lour dmnd o killd orkr. Corrponding ri in h n o ououring. W ho h highr dgr o x progrion or lo-killd orkr ill dr h lr o unkilld orkr nd inr h lr o killd orkr. Alo h proi o irm inr. W prod ollo: Sion II prn h im qun o h diion rgrding om poliy iu oid ih lour x, g ing or domi lo-killd orkr, lour dmnd or domi killd nd unkilld orkr, ououring nd g ing or killd orkr. W udy h gmnd domi lour dmnd or hrognou ork or nd ououring diion nd g ormion o killd orkr du o mrk quilirium undr lour xion in ion III. Wg ormion y h monopoly lour union or unkilld orkr undr linrly progriv g x lvid on orkr nd proporionl pyroll x lvid on irm i nlyzd in ion IV. In ion V udy h imp o unkilld g progrion on mploymn, lr nd proi. Finlly, ummriz onluion in ion VI. II. Bi Frmork W nlyz modl ih hrognou domi orkr nd inrnionl ououring. Th produion omin lour rvi y killd orkr nd unkilld orkr. Unkilld lour rvi n providd ihr y h irm on orkr, or oind rom rod hrough inrnionl ououring. W um h h irm my lxil nough o did upon h moun o ououring iviy only r h g i y h rd union. Th im qun or hi i drid y Figur. 4

7 g g g 3 im x poliy unkilld g killd nd unkilld lour dmnd, diion y lour union ououring diion, killd lour upply nd killd g Figur : Tim qun o diion Th govrnmn i poliy g. A g ondiionl on poliy hoi y h govrnmn, h lour union drmin h g or h unkilld orkr y king ino oun ho hi h dmnd or lour nd ououring y h irm. W um h hr r mny induri, o h h lour union rprn only mll rion o h ol lor or. A g 3, irm did on domi mploymn nd inrnionl ououring. Th g o h killd lour dju o quliz lour dmnd nd lour upply. Th diion h g r nlyzd y uing krd induion. III. our Dmnd, Ououring Diion nd Skilld Wg Formion III.. our Dmnd nd Ououring A h l g, h irm did on h killd lour dmnd, h unkilld lour dmnd nd ououring in ordr o mximiz h proi union x 3,, π F,, ~ ~ g 5

8 Whn diding on i lour dmnd nd ououring, h irm k givn h gro g or killd lour, ~, nd h gro g or unkilld lour, ~, hr i h proporionl pyroll x lvid on h irm. In ordr o oin uni o ouourd unkilld lour inpu, um h irm quir h unkilld lour inpu h or pri nd lo irm hv o pnd g,5 ih g' nd g '' o lih h piy or orign ououring onrning h nork o upplir in h rlvn lo-g ounri. W ollo Kokl nd Snk 7 y uming gnrl nd ronl Co-Dougl-yp produion union ih dring rurn o l ording o hr lour inpu, i.. F,, [ ], hr h prmr nd r umd o iy h olloing umpion : < < nd < <. Th prmr pur h produiviy o h ouourd unkilld lour inpu rliv o h domi unkilld lour inpu. Th mrginl produ o killd lour, unkilld lour nd ououring r: F Y, F Y, nd F Y F, hr Y. Th ouourd unkilld lour inpu h mrginl produ o h domi killd nd unkilld lour inpu ollo: F Y F [ ] < Y. For hi produion union h domi killd lour inpu nd h ouourd unkilld lour inpu r omplmn, hr h unkilld domi lour inpu nd h ouourd unkilld lour inpu r uiu in rm o h mrginl produ o ououring. Alo on n lul rom h produion union h h domi killd nd unkilld lour r omplmn, i... Givn h g, h ououring o union nd h x prmr h ir-ordr ondiion F 6

9 hrrizing h domi killd nd unkilld lour dmnd nd ououring r 3 [ ] ~ π 3 [ ] ~ λ π [ ]. 3 λ π Th ir-ordr ondiion imply h olloing rlionhip n h killd lour nd h unkilld lour inluiv o ououring. 4 Uing 3 nd 3 hv 5 hr, nd o h. Aording o 5 opiml lxil ououring rquir h o h or pri o ououring hould mllr hn h gro or pri o domi unkilld lour muliplid y h rliv produiviy o ououring. ighr unkilld domi g r, highr pyroll x nd highr produiviy o ouourd lour inpu, lor ououring o nd lor or pri o ououring ill inr ououring. Suiuing h RS o 4 ino 3 giv Appndix A h unkilld lour dmnd, hih n xprd ollo 7

10 m m, 6 hr [ ] m, nd, hih r h on g liiy nd h ro g liiy o h unkilld lour in h n o ououring. Th r highr ih kr dring rurn o l. In h n o ououring h pyroll x liiy o h unkilld lour i u o h dring rurn o l. Aording o 6, mor xniv ououring iviy ill dr h unkilld lour dmnd. Thi ur i onin ih mpiril vidn. 3 In h prn o ououring h g liii o h unkilld lour, nd, n rin ollo 7. 7 Conrning h g liii ind h nd o h hn ououring ill hng, h on g nd ro g liii o h unkilld lour dmnd 3 For inn Dihl 999 h prnd mpiril vidn rom Grmn mnuuring induri in uppor o hi hypohi. orovr, Görg nd nly 5 hv ud pln-lvl d o h Irih lroni or o mpirilly onlud h inrnionl ououring rdu pln-lvl lour dmnd. 8

11 inr. Th r in onormiy ih mpiril vidn. 4 Dirniing 7 ih rp o giv 8 o h h pyroll x in h prn o ououring ill hv poiiv on h g liiy o h unkilld lour dmnd. Compriv i i quliivly imilr in rm o, u hr i no g liiy o pyroll x in h n o ououring, i... In h prn o lxil ououring h pyroll x liiy o h unkilld lour,, i 9 o h highr ououring ri hi liiy ll. Th o ououring o on h g liiy o unkilld lour i < o h lor ououring o ill inr g liiy o domi unkilld lour dmnd. Alo on n ho h highr ououring produiviy ill inr h g 4 Sn 6 h providd mpiril vidn ording o hih produion mod ih mor ououring m o inr h g liiy o lour dmnd. Alo Slughr nd n l. 7 hv hon h inrnionl rd h inrd h g liiy o lour dmnd. 9

12 liiy, i... Th o or pri o ououring on h g liiy o unkilld lour i. < O our, lor or pri o ououring ill inr h g liiy o domi unkilld lour dmnd. Finlly, uiuing h RS o quion 6 ino h rlionhip in quion 4 giv h olloing dmnd or h killd lour m, hr, nd. Th liii r lo highr ih kr dring rurn o l, u unlik in h ih h unkilld lour, oh h on g nd ro g lor dmnd liii, nd h pyroll x liiy or h killd lour r indpndn o ououring. Th highr on g, ro g nd pyroll x ill o our ngivly h killd lour dmnd. W n no ummriz our inding rgrding h propri o h domi lour dmnd ollo.

13 Propoiion In h prn o lxil ououring oh h on g nd h ro g liii or h unkilld lour dmnd dpnd ngivly on h o o ououring nd or pri o ououring, nd poiivly on h pyroll x, nd oh h on g nd h ro g liii or h killd lour dmnd r indpndn o h o o ououring nd h pyroll x. Propoiion rvl n ymmry in ho h dmnd or killd nd unkilld lor r o h o o ououring nd h lvl o pyroll x. An inr in ououring o or pyroll x ould inr h on g liiy, nd h ro g liiy or h unkilld lour dmnd, hil hving no on h liii or h killd lour dmnd. III.. Wg Formion or Skilld Workr III.. Opiml our Supply o Skilld Workr W um h h mrk quilirium or h killd g ollo rom h quliy o lour dmnd nd h lour upply y uing h o Co-Dougl C-D uiliy union, o h h liiy o uiuion n onumpion nd liur i on. Fir driv lour upply nd r h h g ormion rom mrk quilirium y king h lo-killd g givn. W um h h govrnmn n mploy h proporionl g x or killd orkr, hih i lvid on h g r minu x xmpion. Thu h ol x in hi i, hr i lour upply. In h prn o poiiv x xmpion h mrginl g x xd h vrg g x r / o h h ym i linrly progriv. 5 Th n-o-x g, h killd orkr riv, i. 5 For minl ppr ou x progrion, ugrv nd Thin 948, nd or nohr lorion,.g. mr, hpr 7-8.

14 our upply o h killd orkr i drmind y uiliy mximizion. In µ µ h o h C-D uiliy union mximizing U C, C, < µ <,.. C ih rp o lour upply giv U µ µ µ µ µ µ o h µ 3 Thror undr hi umpion h n-o-x g ill hv no on lour upply hn h uiuion nd inom o g r nl h ohr. I i imporn o mphiz h nrl inding in h mpiril lour mrk lirur i h lour upply nd o qui unrponiv long h inniv mrgin or mpiril vidn,.g. Immrvoll l 7 nd Blundll nd Curdy 999. Thror, ou on hi inding onrning h mrk quilirium o killd orkr. III.. rk Equilirium or Skilld Wg Formion Unlik in h o lo-killd orkr um h h killd g i drmind y h mrk quilirium onrning h quliy o h lour dmnd union nd h lour upply union. In h o C-D uiliy union h quliy m giv µ, hih llo o olv µ m hr / nd /. Th ompriv i 4 in rm o i µ m <. 5

15 Equion 5 li in onormiy ih mpiri onrning h ngiv rlionhip n killd nd unkilld g. 6 Th o pyroll x on h g r o killd orkr i µ m < 6 o h highr pyroll x ill dr h g r o killd orkr u i dr lour dmnd givn h lour upply onrning mpiril vidn,..g. Dvri nd Tllini, nd Bingly nd no. Aording o 3 h killd g r do no dpnd on h ououring o nd h produiviy o ououring. W n no ummriz our inding rgrding h propri o h killd g drminion in h prn o ououring ollo. Propoiion In h prn o lxil ououring h high-killd g dpnd ngivly on h unkilld g nd h pyroll x, u i indpndn o h killd g x prmr in h o killd orkr Co-Dougl uiliy union, nd h killd g i lo dirly indpndn o h o o ououring nd h produiviy o ououring, u dpnd indirly on h unkilld g hng nd h produiviy o h unkilld g hng o h highr ououring o ill dr, hil highr produiviy o ououring unkilld lour inpu rliv o h domi unkilld lour inpu ill inr h killd g. In h ir igh, i my ppr urpriing h h killd g r ngivly o h unkilld g x, u i indpndn o hir on g x. Th inuiion or hi rli on our umpion h h killd orkr hv Co-Dougl uiliy union. 6 S vidn rom vriou ounri hih li in onormiy ih hi,.g. Brun nd Shl 7, Fnr nd non 999,, ijzn l 5, ijzn 7, Eggr nd Eggr 6, unh nd Skkn 5, Rily nd Young 7 nd Gihkr nd Görg 8. 3

16 Wih i, inom nd uiuion o x inr on h lor upply nl h ohr ou. IV. Wg Formion y onopoly our Union No nlyz h g ormion o unkilld orkr o h i k pl in niipion o opiml lour nd ououring diion y h irm. W nlyz h g ormion y h monopoly union lo Chu nd Zylrrg 4, p onrning h monopoly union piiion, hih drmin h g or unkilld orkr in niipion o opiml in-hou unkilld lour dmnd in h prn o lxil ououring drmind imulnouly nd o mrk quilirium or h high-killd g. 7 IV.. Wg Formion y h onopoly our Union W invig h g ormion y monopoly lour union hn hr i proporionl pyroll x, nd h linrly progriv g x or unkilld orkr. Th mrk quilirium or h killd g ollo rom h quliy o lour dmnd nd h lour upply y ouing h o C-D uiliy union. Th monopoly lour union drmin h g or unkilld orkr in niipion o opiml domi lour dmnd nd ououring diion y h irm. W um h govrnmn n mploy proporionl x r, hih i lvid on h g r minu x xmpion, i.. h ol x i. In h prn o poiiv x xmpion h mrginl g x xd h vrg g x r / o h h ym i linrly progriv nd h n-o-x g i. 7 In Wrn Europn ounri, hih lik o ou, lour mrk iniuion r lo o hi.g. Frmn 8. 4

17 Th ojiv union o h lour union i umd o, hr i h xognou ouid opion vill o h unkilld orkr nd i h numr o lour union mmr. Th monopoly lour union g or h unkilld orkr o o mximiz h urplu ording o N N V N 7 { N V mx.. m m nd hr in h prn o pyroll x m nd, hih impli µ m µ quion, 3 nd 4. Th ir-ordr ondiion oid ih 7 i. V 8 nd hi n rin ollo V 9 hr, h on g liiy o unkilld lour dmnd i nd h ro g 5

18 liiy o unkilld lour dmnd. Th unkilld lour dmnd liii r no onn u h unkilld lour dmnd, m m dpnd ngivly on h olloing vril: h killd g, h unkilld g, h produiviy o h ouourd unkilld lour inpu rliv o h domi unkilld lour inpu, nd h pyroll x nd poiivly on h o o ououring nd h or pri o ououring. Equion 9 n xprd ollo hr. Thror hv Appndix B,,,,,, o h h ol g liiy lo lloing or h rlionhip n killd nd unkilld g i, hr 6

19 nd. I i imporn o mphiz h h opiml unkilld g vn in h o h monopoly lour union i n implii orm in h prn o ououring, u h mrk-up A dpnd on h unkilld g r in non-linr y o h i nno olvd xpliily or h opiml domi unkilld g. IV.. Compriv Si o Wg Formion In ordr o hrriz h o ououring o on h unkilld g ormion hror pply h implii dirniion. Dirniing h g ormion ih rp o h unkilld g nd h ououring o giv d d hih n xprd / < d d. Uing quion, nd luling < quion, nd 7

20 h rlionhip n h unkilld g ormion nd ououring o n rin ollo d d 3 o h highr lor ououring o ill inr dr h g o unkilld domi orkr. Dirniing h implii g ormion ih rp o h produiviy o h ouourd unkilld lour inpu rliv o h domi unkilld lour inpu nd unkilld g ormion giv d d 4 hih n xprd y uing ollo < d d 5 Dirniing h implii g ormion ih rp o h or pri o ououring nd unkilld g ormion giv 8

21 d d 6 hih n xprd / < d d o h d d 7 hr lik in quion hv. < Thror, lor or pri o ououring ill hv g modring on h domi unkilld g du o h highr g liiy o h unkilld lour dmnd. orovr, nd impornly, quion 3, 5 nd 7 joinly ih quion 5 imply < d d nd d d nd < d d o h oh h lor o o ououring, h highr produiviy o h ouourd lo-killd lour inpu nd h lor or pri o ououring ill hv poiiv on h domi killd g. In rm o ompriv i o h unkilld h g x, h x xmpion nd h ouid opion or unmploymn ni hv h olloing rul Appndix B 9

22 d d 8 d d < 8 d d 8 Aording o 8-8 h o g x, x xmpion nd ouid opion on lo-killd g ormion r quliivly h m ih nd ihou ououring d d u, < d d nd d d. O our, in h n o ououring h mrk-up n ouid opion nd g ormion A i highr hn in h prn o ououring. orovr, h quion 8- imply joinly ih d quion 5 h <, d d d nd < o h h highr g x nd h d d highr ouid opion o unkilld orkr ill dr h g or h killd lour, hil h highr x xmpion o lo-killd orkr ill inr h g or h killd lour. Finlly, dirniing h implii g ormion ih rp o h g o unkilld orkr nd h pyroll x giv

23 d d, 9 hih n xprd ollo < d d 3 u h highr pyroll x ill inr h g liiy o h unkilld lour, i.. or h ron h hv. 3 Thror, h pyroll x ill hv g modring onrning h lokilld orkr g, u h pyroll x ill hv poiiv on h g liiy. Bu in h n o ououring i ill hv no on g ormion, i.. u. Th ol o h pyroll x on h killd orkr g i h olloing { {{ < d d d d 3 Appndix C hr hr i h ngiv dir nd h poiiv indir o h pyroll x, nd h ol i ngiv. In h n o ououring hi i lo ngiv,

24 d u. d W n no ummriz our inding in rm o h unkilld g ormion in h prn o ououring ollo. Propoiion 3 In h prn o lxil ououring h lor o o ououring, h lor or pri o ououring nd h highr produiviy o ouourd produion ill dr h g or h unkilld lour nd inr h g or h killd lour, hry induing highr g diprion, nd h highr unkilld g x ill inr h g or h unkilld lour nd dr h g or killd lour nd h highr unkilld g x xmpion ill dr h g or h unkilld lour nd ill inr h g or h killd lour, nd h quliiv rul r lo imilr u highr in h n o ououring, hr h highr pyroll x or h irm ill dr h g or h unkilld nd or h killd lour. In h n o ououring, h highr pyroll x or h irm ill dr h g or h killd lour, u h no on h g o unkilld lour. Aording o h ir pr o hi propoiion highr ououring du o lor ououring o, highr produiviy o ououring inpu nd lor or pri o ououring i prly in lin ih h h h ouourd inpu i uiu or h unkilld domi lour nd omplmn or h killd domi lour. Aording o h ond pr o hi propoiion h quliiv o g x nd x xmpion or h unkilld orkr r no hngd y lxil ououring. Th hird pr o propoiion rvl h in h n o ououring h highr pyroll x ill hv no on h g o h unkilld lour y h monopoly union, u in h prn o lxil ououring h monopoly union ill u h g i u h on g liiy o h unkilld lour ill inr. Finlly, h

25 highr pyroll x ill hv ngiv h g or h killd in h prn o ououring, nd lo in h n o ououring. V. Th Imp o Unkilld Wg Tx Progrion V.. Employmn E Nx nlyz h o g x progrion on g ormion y h unkilld orkr nd lour dmnd. W um h h x rorm ill kp h rliv x urdn pr unkilld orkr onn, hih mn R 33 Th govrnmn n ri h dgr o g x progrion y inring nd lloing hng in undr h ondiion dr. Formlly hv nd d d dr, 34 Conrning h unkilld g o hi rorm hv d d nd dividing y d nd uiuing h RS o 34 or d / d giv Appndix D d < 35 d dr d o h highr dgr o g x progrion, kping h rliv x urdn pr 3

26 unkilld orkr onn, ill dr h unkilld g r. In h n o d ououring h quliiv i imilr, i.. < d dr, d Appndix D. Finlly, hrriz h unkilld mploymn y riing x progrion kping h rliv x urdn pr unkilld orkr onn o inr nd ording o 34, o h hv h olloing mploymn d d d. Dividing hi y d nd uiuing h RS o 34 or d / d giv d d dr d d d dr. d 43 4 dr 36 o h highr dgr o g x progrion kping h rliv x urdn pr lokilld orkr onn, ill inr h unkilld lour dmnd. Th rul 34 nd 35 lo hppn in h o domi dul lour mrk in h prn o rgi ououring Kokl nd Pouvr 8 nd in h o homognou domi lour mrk Kokl nd Shö 8. Th quliiv i imilr in h n o ououring. 8 Th ol onrning dir nd indir o hng in unkilld g on h killd lour dmnd i zro, i.. d d d n xprd uing quion d d 37 8 Thi h n nlyzd in h n o ououring.g. in Kokl nd Vilmunn 996 nd in Kokl nd Shö. 4

27 W n no ummriz our inding in rm o h unkilld g ormion nd lour dmnd in h prn o lxil ououring ollo. Propoiion 4 In h prn o lxil ououring highr dgr o x progrion y riing h g x nd h x xmpion or h unkilld orkr o kp h rliv urdn pr orkr onn ill dr h g r nd inr lour dmnd o unkilld orkr, hil i ill hv no on h lour dmnd o killd orkr nd quliivly imilr ri in h n o ououring. From h prpiv o h lour union, n inr in x progrion hng h rdo n n g r nd mploymn. An inring progrion nourg h lour union o modr i g dmnd, h opporuniy o o givn n g inr in rm o ddiionl unmploymn inr. V.. Wlr E No nlyz h lr o unkilld g x progrion on h unkilld rd union ojiv, h killd Co-Dougl uiliy nd h irm proi y ill uming h h x rorm ill kp h rliv x urdn pr unkilld orkr onn. Th ol o hng in x prmr nd on h ojiv union o unkilld orkr V N N i dv V d V d V d, hr ording o h nvlop horm. To V kp h rliv x urdn pr unkilld orkr R onn mn h d d d dr nd uiuing h RS o hi or d in dv V d V d V d giv 5

28 dv d dr d V V V < 38 d dr 443 hr V nd V o h V V. ighr unkilld g x progrion ill dr h lr o unkilld orkr y dring h g r. Thi lo hppn in h n o ououring. Th ol o hng in x prmr nd on h ojiv union µ µ µ o killd orkr U C i du U d Ud U d, hr U U o h hv hr du d d U d dr dr U µ µ µ u ording o 37. Thror, highr unkilld g x progrion ill inr h lr o killd orkr rul o highr killd g. Thi lo hppn in h n o ououring. proi i Finlly, h ol o hng in x prmr nd on h irm dπ π d π d π d nd o kp R onn mn h d d d d dr nd uiuing i RS or d in d d π d π π π π giv uing h nvlop horm 6

29 dπ d dr π π π π d π d dr ~ ~ π o h π, π hr [ ] π π π nd. W n rri 4 ollo dπ d d π π d dr 43 4 dr 4 hr π < nd π < nd π π < Appndix E. Thror, highr unkilld g x progrion y dring h unkilld g ill inr h irm proi nd h quliiv rul i imilr in h n o ououring. W n no ummriz our inding in rm o h lr o lokilld x progrion in dul lour mrk ollo. Propoiion 5 In h prn o lxil ououring highr dgr o x progrion, ruling rom riing h g x nd h x xmpion or h unkilld orkr o kp h rliv urdn pr orkr onn, ill dr h lr o unkilld orkr, nd i ill inr h lr o killd orkr rul o highr killd g, nd i ill inr h proi o irm, nd d h o x progrion r quliivly imilr in - lo in h n o ououring. 7

30 Th lr r drivn y h hngd lour union inniv, rpord in Propoiion 4. Inrd x progrion rdu h monopoly rn h h lour union i l o xr, hu ruling in lor lr or h unkilld union mmr. A h m im, rdud unkilld g r oviouly inr h proi o irm lrdy in h irm ould no hng hir mploymn, nd urhr hn mploymn hng r ound or. Th killd orkr gin du o omplmnrin in produion u highr unkilld g x progrion ill rdu unkilld g, nd hror inring h ol u o unkilld lour y h irm. VI. Conluion o rn Europn ounri r hrrizd y dul lour mrk, in hih g o om orkr r y lour union, hil ohr g r drmind ompiivly. In hi ppr hv udid ho h prn o lxil ououring uh n onomy hn h unkilld orkr r unionizd nd h killd orkr r mployd in ompiiv lour mrk. W hv hon h in h prn o lxil ououring h on g liiy nd h ro g liiy or h unkilld lour dmnd dpnd ngivly on h o o ououring, nd h or pri o ououring nd poiivly on h pyroll x, nd h liii r indpndn o h o o ououring nd h pyroll x or h killd lour dmnd. By uming h h mrk quilirium or h killd g ollo rom h quliy o lour dmnd nd lour upply nd h h killd orkr hv Co-Dougl uiliy union, ind h h killd g dpnd ngivly on h unkilld g nd h pyroll x, nd i i indpndn o h killd g x prmr. Th killd g dpnd indirly on h unkilld g hng nd h produiviy o ouourd produion o h highr ououring o ill dr, hil highr produiviy o unkilld lour inpu rliv o h domi lour inpu ill inr h killd g. 8

31 In h prn o lxil ououring h lor o o ououring, h lor or pri o ououring nd h highr produiviy o ouourd produion ill dr h g or h unkilld lour nd inr h g or h killd lour, hry induing highr g diprion. orovr, h highr unkilld g x ill inr h g or h unkilld lour nd dr h g or killd lour nd h highr unkilld g x xmpion ill dr h g or h unkilld lour nd ill inr h g or h killd lour. Th highr pyroll x or h irm ill dr h g or h unkilld nd killd lour, hil in h n o ououring, h highr pyroll x or h irm ill dr h g or h killd lour, u h no on h g o unkilld lour. In h prn o lxil ououring riing h g x nd h x xmpion or h unkilld orkr o kp h rliv urdn pr orkr onn, hi highr dgr o x progrion ill dr h g r nd inr lour dmnd o unkilld orkr, hil i ill hv no on h lour dmnd o killd orkr, nd hi lo ork in h n o ououring. Conrning h lr o unkilld g x progrion on h unkilld rd union ojiv, h killd Co- Dougl uiliy nd h irm proi, hv hon h hi highr dgr o x progrion ill dr h lr o unkilld orkr nd inr h lr o killd orkr rul o highr killd g, hil i ill inr h proi o irm y dring h unkilld g. Our rmork ugg vrl vnu or uur rrh. Fir o ll, rrid h nlyi o x rorm o h o inring x progrion or unkilld orkr, o h hir vrg x r y h m. An lrniv rorm nrio ould o um h h govrnmn h givn rvnu rquirmn, nd g x prmr r hngd o h i i ill iid. In h, g xion ould r lo o mploymn hng. On ould hn lo udy h o rorm h ould hng h g x r nd h pyroll x r. For xmpl, h ould o inring h unkilld g x r nd loring h pyroll x, i h hng i implmnd uh h h ol govrnmn rvnu rom g x nd pyroll x do no hng? orovr, i i imporn o udy h ould h opiml linr lour x ruur in h prn o ououring? 9

32 Anohr imporn rrh quion ould o ompr h o lxil ououring, nlyzd in hi ppr, ih rgi ououring in Kokl nd Pouvr 8. Whih rgim rul in highr lvl o ououring? o h g r o h unkilld nd killd orkr dir? Whih yp o ououring rul in mor lo-killd unmploymn? Wh r h on h lr o dirn kill yp nd on h proi r? Du o omplxii involvd, i ppr h uh n nlyi ould ll or ompuionl gnrl quilirium modl, lloing luling h onomi quilirium in h o nrio. Doing hi i l or uur rrh. Finlly, our rrh ll or ddiionl mpiril ork. Elihing ho ommon rgi nd lxil ououring r in vriou induri, omind ih horil nlyi h ould ompr hir onomi, ould llo o im onomi h inring glolizion n xpd o hv on Europn Wlr S. Rrn: Amii,. nd S.-J. Wi 5: Fr o Srvi Ououring: I I juiid?, Eonomi Poliy, 4, Bingly, P. nd G. no : Th Inidn o Inom Tx on Wg nd our Supply, Journl o Puli Eonomi, 83, Blundll, R.W. nd T. Curdy 999: our Supply: A Rvi o Alrniv Approh, in O. Ahnlr nd D. Crd d: ndook o or Eonomi, vol. 3A, Brun, F.D. nd J. Shl 7: Do Inrnionl Ououring Dpr Union Wg?, SFB 649 Diuion Ppr, 7-33, umold Univriä zu Brlin. Chu, P. nd A. Zylrrg 4: or Eonomi, h IT P. Dvri, F. nd G. Tllini : Unmploymn, Groh nd Txion in Induril Counri, Eonomi Poliy, 3, Dvidon, C., S.J. uz, nd D.R. Nlon 7: Cn Compnion Sv Fr Trd?, Journl o Inrnionl Eonomi, 7, Dvidon, C., S.J. uz, nd A. Shvhnko 8: Glolizion nd Firm vl Adjumn ih Impr our rk, Journl o Inrnionl Eonomi, 75, Dihl,. 999: Th Imp o Inrnionl Ououring on h Skill Sruur o Employmn: Empiril Evidn rom Grmn nuuring Induri, Kil Working Ppr No. 496, Spmr. Eggr,. nd P. Eggr 6: Inrnionl Ououring nd h Produiviy o o- Skilld or in h EU, Eonomi Inquiry, 44,

33 Fnr, R.C. nd G.. non 999: Th Imp o Ououring nd igh- Thnology Cpil on Wg: Eim or h Unid S, , Qurrly Journl o Eonomi, 4, Fnr, R.C. nd G.. non : Glol Produion Shring nd Riing Inquliy: A Survy o Trd nd Wg, NBER Working Ppr No. 837, July. Frmn, R.B. nd R. Shk : rkizion o Produion nd h US- Europ Employmn Gp, Oxord Bulling o Eonomi nd Sii, 63, Frmn, R.B. 8: or rk Iniuion Around h World, CEP Diuion Ppr No 8-844, Jnury, Whingon D.C. Gihkr, I. nd. Görg 8: Winnr nd or: A iro-vl Anlyi o Inrnionl Ououring nd Wg, Cndin Journl o Eonomi, 4, Görg,. nd A. nly 5: our Dmnd E o Inrnionl Ououring: Evidn rom Pln-vl D, Inrnionl Rvi o Eonomi nd Finn, 4, n, R., D. ir nd R.V. Rmmy 7: Trd Rorm, or Rgulion, nd or-dmnd Eliii: Empiril Evidn rom Indi, h Rvi o Eonomi nd Sii, 893, ijzn, A. 7: Inrnionl Ououring, Thnologil Chng, nd Wg Inquliy, Rvi o Inrnionl Eonomi, 5, ijzn, A.,. Görg nd R.C. in 5: Inrnionl Ououring nd h Skill Sruur o our Dmnd in h Unid Kingdom, h Eonomi Journl, 5, Immrvoll,.,.J. Klvn, C.T. Krinr nd E. Sz 7: Wlr Rorm in Europn Counri: A iroimulion Anlyi, h Eonomi Journl, 7, Kokl, E. nd P. Pouvr 8: Ououring nd or Txion in Dul or rk, CESio Working Ppr No. 333, Jun. Kokl, E. nd R. Shö : Opiml For Inom Txion in h Prn o Unmploymn, Journl o Puli Eonomi Thory, 4, Kokl, E. nd R. Shö 8: Ououring o Unionizd Firm nd h Imp o our rk Poliy Rorm, IZA Diuion Ppr No. 3566, Jun, Univriy o Bonn. Kokl, E. nd R. Snk 7: Equilirium Unmploymn ih Ououring nd Wg Solidriy undr our rk Imprion, CESio Working Ppr No. 988, rvid in y 8. Kokl, E. nd J. Vilmunn 996: Tx Progrion i Good or Employmn in Populr odl o Trd Union Bhviour, our Eonomi, 3, mr, P.J. : Th Diriuion nd Rdiriuion o Inom, 3 rd diion, nhr Univriy Pr. unh, J.R. nd J.R. Skkn 5: Spilizion, Ououring nd Wg, IZA Diuion Ppr No. 97, Dmr, Univriy o Bonn, orhoming in: Rvi o World Eonomi. ugrv, R.A. nd T. Thin 948: Inom Tx Progrion, , Journl o Poliil Eonomy, 56,

34 Pirid, C.A. 998: Th Imp o Employmn Tx Cu on Unmploymn nd Wg: h Rol o Unmploymn Bni nd Tx Sruur, Europn Eonomi Rvi, 4, Rily, R. nd G. Young 7: Skill rogniy nd Equilirium Unmploymn, Oxord Eonomi Ppr, 59, Rihi,. nd S. Sxn 4: I Ououring Rlly Bd I i d Sound?, Working Ppr, Univriy o Piurg. Sn,.Z. 6: Th E o Ououring on h Eliiy o or Dmnd, CES Diuion Ppr No. 6-7, rh, Whingon D.C. Sinn,.-W. 7: Th Wlr S nd h For o Glolizion, CESio Working Ppr No. 95. Slughr,.J. : Inrnionl Trd nd or-dmnd Eliii, Journl o Inrnionl Eonomi, 54, Snov, B.. 6: Th Poliil Eonomy o Ououring in h Europn Union nd h E-Europn Enlrgmn, Buin nd Polii 8, iu. Appndix A: Opiml Unkilld our Dmnd Suiuing h RS o 4 or ino 3 giv ~ o h ~ A A hih i quivln o. A3 ~ A3 nd 5 in i urn giv 6. QED. Appndix B: Opiml Wg Sing undr Progriv Wg Txion nd Proporionl Pyroll Txion Th ir-ordr ondiion oid ih mx { nd n rin ollo V.. π 3

35 V B hr h on g liiy o lour dmnd i nd h ro g liiy i nd h lour dmnd undr pyroll x i m m. In h o h C-D uiliy union hv m µ B o h < m µ. B3 Uing B nd B3 giv <, hih impli h quion u. Dirniing in rm o unkilld g nd g x r giv d d B4 33

36 nd uing, B4 n xprd d d B5 hih giv 8. Equion 8 nd 8 n drivd in h imilr y. QED. Appndix C: Th ol o h pyroll x on h killd orkr g Uing quion 5, 6, 3 nd 3 h quion 3 n xprd d d C o h < d d C QED. 34

37 Appndix D: Tx Progrion nd Unkilld our Dmnd Suiuing h RS o 34 ino d d d impli d d dr D hih giv 35, hr h dnominor i poiiv. Conrning h numror in 35 oin h i i ngiv, i.. < D D hr D nd. In h n o ououring hv h m quliiv rul <, < dr d d. QED. Appndix E: Tx Progrion nd Wlr E o Firm Conrning π π in quion 4 hv nd o h < π < π π π E hr, m m. Uing nd quion E n xprd < π π. QED E 35