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Changed Industrial Relationship by Offshoring Threat and Labor Share: An Empirical Game-Theoretic Analysis

Tetsuya Tamura and Natsuka Tokumaru

Abstract

Research indicates that the labor share of the aggregate income has decreased steadily since the mid-1970s, i.e. when the globalization process began. This paper discusses the ways in which qualitative changes in globalization, coupled with increased offshoring, have changed industrial relationships. In our analysis, we consider a simple Nash bargaining model between employers and employees. Our model proposes the hypotheses that employees gain the power to increase their wages when employers do not have the option of offshoring. However, employees typically lose this power when employers possess an offshoring threat, culminating in wage deduction. Leveraging a panel set of data obtained from 18 OECD countries during the period 1975–2017, we have empirically confirmed these hypotheses by comparing the first phase of globalization—not characterized by an offshoring threat—with the second phase, which entails an offshoring threat. Our findings reveal that workers’ bargaining power, positively affects labor share in the first phase; however, it loses its effect in the second phase when offshoring exerts its negative effects on labor share. We conclude that a qualitative change in globalization with increased offshoring radically changed industrial relationship through the threat effect.


Corresponding author: Tetsuya Tamura, Graduate School of Economics, Ritsumeikan University, Kusatsu, Japan, E-mail:

Acknowledgments

We sincerely appreciate two anonymous referees Tadasu Matsuo and John Lambino, for providing profound comments that contributed to improve our manuscript tremendously. Naturally, all mistakes are ours.

Appendix

Table A1:

Trends in individual countries.

Country Variable 1975 1996 % change

1975–1996
2017 % change

1996–2017
Labor share 66.4 58.4 −12.0 52.1 −10.7
Australia KOF index 39.9 61 52.8 68.2 11.8
Offshoring 8.1 16.7 103.8 42.8 156.4
Union density 50.1 31 −38.1 13.7 −55.8
Labor share 65.5 58.2 −11.1 54.3 −6.7
Austria KOF index 57 76.1 33.5 82.9 8.9
Offshoring 9.4 7.9 −15.8 13.8 75
Union density 52.6 40.1 −23.7 26.7 −33.4
Labor share 63.9 61.9 −3.1 58.9 −4.8
Belgium KOF index 71.1 84.1 18.2 88.5 5.2
Offshoring No data 11.8 18.1 53.8
Union density 51.9 56 7.8 51.9 −7.3
Labor share 60.2 56.7 −5.8 54.7 −3.5
Canada KOF index 44.4 65 46.3 71.7 10.3
Offshoring 9.1 9.7 6.3 27.4 182.4
Union density 34.3 34.1 −0.5 29.4 −13.7
Labor share 62.6 54.7 −12.6 54.8 0.1
Denmark KOF index 54 77.8 44.0 84.5 8.6
Offshoring 9 8.5 −5 15.8 84.3
Union density 68.9 76.4 10.8 66.1 −13.4
Labor share 67.3 56.4 −16.1 52.2 −7.4
Finland KOF index 47.3 73 54.3 83 13.6
Offshoring 7.8 13.5 73.2 20.9 54.3
Union density 65.3 80.8 23.7 62.2 −23.0
Labor share 65.7 56.9 −13.3 58.1 2.1
France KOF index 49.3 67.5 36.9 78.1 15.7
Offshoring 16.6 13.2 −20.6 17.6 33.3
Union density 22.8 9.2 −59.6 8.8 −4.3
Labor share 64 59.1 −7.6 57.7 −2.3
Germany KOF index 55.1 67.7 22.8 80.5 18.9
Offshoring 16 14.4 −10 21.1 46.7
Union density 34.6 27.8 −19.6 16.7 −39.9
Labor share 67.5 52.8 −21.7 35.2 −33.3
Ireland KOF index 68.4 88.4 29.2 88 −0.4
Offshoring 6.2 6.5 5.2 8.1 24.2
Union density 55.3 44.2 −20.0 24.3 −45.0
Labor share 66.4 53.7 −19.1 51.9 −3.3
Italy KOF index 41.2 63.7 54.6 70.2 10.2
Offshoring 23.1 19.6 −15.1 29.5 50.8
Union density 48 36.7 −23.5 34.3 −6.5
Labor share 72.1 63.7 −11.6 57 −10.5
Japan KOF index 33.2 44.2 33.1 66.7 50.9
Offshoring 32 31.6 −1.2 47 48.4
Union density 34.4 23.2 −32.5 17.1 −26.2
Labor share 79.2 73.2 −7.5 59.4 −18.8
Korea KOF index 28.3 36.2 27.9 64.3 77.6
Offshoring 5.7 19.3 234.1 41.2 112.9
Union density 15.8 12.1 −23.4 10.5 −13.2
Labor share 70.2 60.7 −13.5 57.3 −5.6
Netherlands KOF index 70.1 82.7 17.9 89.4 8.1
Offshoring 13.9 13 −6.5 34.4 164.9
Union density 37.8 25 −33.8 16.8 −32.8
Labor share 60.5 49 −19.0 50.1 2.2
Norway KOF index 59.9 72.3 20.7 77.5 7.1
Offshoring 7.7 8.6 11.2 21.2 145.2
Union density 53.8 56.3 4.6 49.3 −12.4
Labor share 66.4 59.1 −10.9 52.6 −10.9
Spain KOF index 34.5 65.1 88.6 76.6 17.6
Offshoring 22.3 16.8 −24.6 29.7 76.2
Union density 13.3 17.8 33.8 14.2 −20.2
Labor share 52.8 48.7 −7.7 49.2 1.0
Sweden KOF index 50.3 73.9 46.9 83.4 12.8
Offshoring 8.1 4.7 −42 14.8 212.7
Union density 74.5 95.1 27.6 65.6 −31.0
Labor share 67 51.8 −22.6 57.5 11.0
UK KOF index 63.1 74.2 17.5 81.5 9.8
Offshoring 16.8 11 −34 22.1 99.8
Union density 43.8 32.6 −25.5 23.4 −28.2
Labor share 61.4 59.6 −2.9 56.8 −4.6
US KOF index 40.1 59.1 47.3 68.1 15.2
Offshoring 28.9 31.8 10 51.6 62.1
Union density 25.3 14 −44.6 10.5 −25

Table A2:

Multicollinearity test.

Variable VIF 1/VIF
KOF 2.47 0.404668
Offshoring 1.98 0.505177
UD 1.57 0.635046
Unemp 1.44 0.693553
ΔGDP 1.41 0.711349
GE 1.08 0.929429
Mean VIF 1.66

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Received: 2020-10-16
Accepted: 2021-12-13
Published Online: 2021-12-27

© 2021 Walter de Gruyter GmbH, Berlin/Boston

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