The Dilemma of Labor Unions: Local Objectives vs. Global Bargaining

Multinational enterprises are able to improve their disagreement profits by setting up foreign production facilities, with adverse consequences for negotiated wages and union utilities. In this paper, we take a new angle at this issue and analyze whether unions can improve their situation by cooperating internationally. By shifting the focus from firms to unions as the active players, we aim at explaining why unions find it hard to respond to the detrimental shift in bargaining position as a result of globalization and why there is so little evidence for union cooperation within multinational production networks. Our results show that cooperation is clearly beneficial for unions if their preferences regarding wages and employment are similar across countries. If these preferences differ, however, potential production relocations by multinationals create winners and losers among unions, and these distributional effects may impede cooperation.