Asymmetric labor markets and the location of firms: Are multinationals attracted to weak labor standards?

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Title: Asymmetric labor markets and the location of firms: Are multinationals attracted to weak labor standards?
Authors: Naghavi, Alireza
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Date: Oct-2003
Abstract: This paper studies the strategic behavior of multinationals towards weak labor standards in developing countries (South). Without a marginal cost pricing policy, abundant labor in the South gives firms the power to set wages through their choice of output. A strategic reduction in output offsets or weakens direct gains from lower wages. In an open economy, it also increases output and profits of a competitor that operates in a perfect labor market. These effects lower profitability of locating in the South casting doubts on traditional beliefs that multinationals are always attracted to lower wages. Adopting standards enhances Southern welfare unambiguously.
Type of material: Working Paper
Publisher: University College Dublin. School of Economics
Series/Report no.: UCD Centre for Economic Research Working Paper Series; WP03/23
Keywords: Labor standardsLabor market imperfectionOligopsonyLocation of firmsWagesStrategic behaviorMultinationalsWelfare
Subject LCSH: International business enterprises--Location
Labor laws and legislation--Developing countries
Industrial location--Effect of labor market on
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Language: en
Status of Item: Not peer reviewed
Appears in Collections:Economics Working Papers & Policy Papers

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