Globalization and the Nature of Labor Bargaining: Comments on Sanjay Reddy Matthew J. Slaughter Tuck School of Business, Dartmouth Santa Fe Meeting May 2002

Different Labor-Market Outcomes As a big fan of Sanjay’s work, I am not disinterested when I say that he is working on a very important topic, which I will broadly characterize as the impact of globalization on labor-market outcomes other than rising income inequality across skills: bargaining, labor-demand elasticities. I say this in part because the research on globalization and wages has reached some limits due to data constraints--but also due to, I think, to what went on in the 1990s.

U.S. Income Inequality in the 1990s

U.S. Relative Empl. in the 1990s

Sanjay’s Models Sanjay lays out the economics of how globalization, e.g., greater international capital mobility, can shape the nature of firm-worker relations. What is particularly nice is he embeds this analysis in general equilibrium, and documents rich patterns of possibilities of how these relations are altered. Tomorrow Ken will present some evidence that workers self report greater economic insecurity related to these issues. But what do the data tell us about changes in profit sharing and/or elasticities?

Multinationals and Profit Sharing Budd and Slaughter (2000) find very different profit-wages elasticities across ownership for a panel of Canadian bargaining-unit wage outcomes. Canadian profits, Canadian firms: 0.10 Canadian profits, U.S firms: 0.04 U.S. profits, Canadian firms: U.S. profits, U.S. firms: 0.01.

Multinationals and Profit Sharing Budd, Konings, and Slaughter (2002) find that multinationals share profits across borders between parents and affiliates, especially majority/wholly owned affs. Affiliate wages-affiliate profits: 0.06 Affiliate wages-parent profits: 0.05 One in five European mfg. employees works in a multinational affiliate.

Globalization and Elasticities

Multinationals and Shutdowns In addition to looking at elasticities on the intensive margin, one might wonder about the extensive margin of plant shutdowns: are multinational plants more likely to die. Unconditionally, no: much less likely. Conditional on all the “good qualities” of multinationals, yes.

Are Multinationals Just Evil? The previous issue of multinationals and shutdowns gets to a very important issue: independent of the issues of profit sharing and elasticities, in the raw data multinational firms are much better performers than purely domestic firms. This fact holds for many countries, both high-income and low-income.

Are Multinationals Just Evil? U.S. parents of U.S. multinationals contribute a lot to higher U.S. living standards. –Research and Development: 50%-60% of U.S. total R&D activity. –Investment in Physical Capital: 50%-60% of U.S. Manufacturing Capital Stock. –Exports and Imports: 60% of Exports (nearly 40% to Affiliates) and 30% of Imports. –Higher Wages: 5%-15% Wage Premia.

The U.S. Productivity Boom

ICT Production On many measures, the structure of production in central ICT industries is very global—relative to the broader economy and/or over time as well. –exports and imports –role of multinational corporations –cross-border structure of these firms Much of the output in ICT industries entails multiple production stages across multiple countries, all linked via extensive trade and investment.

ICT Production

Policy Implications Despite the preponderance of evidence that the production and use of ICT products are intricately linked with international trade and investment, there is a wide gulf separating American policy opinions about ICT products on the one hand and trade and investment on the other. The same pluralities to majorities of people who oppose trade and other forms of globalization are the same people who love ICT activity.

Policy Implications