| Abstract: | Abstract. We consider the implications of international outsourcing in a simple general equilibrium model where the wage rate is the outcome of negotiations between a firm and a trade union. The effects of potential, but non‐realized, international outsourcing, is a reduction in the wage rate and an increase in employment. Aggregate welfare increases, but the trade union becomes worse off while owners of capital become better off. Realized international outsourcing gives rise to an increase in the wage rate and a reduction in employment. Aggregate welfare decreases, but the trade union becomes better off, while owners of capital become worse off. |
