Offshoring and Labor Market Power: Comparing 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.