Does offshoring shape labor market imperfections: A comparative analysis of Belgian and Dutch firms

Abstract

We study the relationship between offshoring and labor market imperfections at the firm level in Belgium and the Netherlands. In both countries, wage-markup pricing stemming from workers’ monopoly power is more prevalent than wage-markdown pricing originating from firms’ monopsony power. Offshoring is associated with a higher prevalence and intensity of wage markdowns, driven by an increase in productivity that is only imperfectly passed through into an increase in wages. The lower firm-level productivity-wage pass-through in Belgium, attributed to its more centralized bargaining structure, makes wage markdowns more responsive to offshoring.