WAGE GAINS FOR STAFF IN GLOBALLY ACTIVE FIRMS: New evidence from French manufacturing

The more that a French manufacturing firm is involved in exporting and offshoring activities, the higher the wages it will be paying its employees on average. What''s more, the wage gains associated with exporting and offshoring are higher in firms with collective bargaining. These are among the findings of a study by Juan Carluccio, Denis Fougère and Erwan Gautier, published in the May 2015 issue of the Economic Journal.

The researchers note that globalisation opens up new export opportunities for firms, resulting in higher domestic employment and wages. But it also facilitates offshoring, which has ambiguous effects. Access to cheaper foreign goods improves the efficiency of the production process. But such efficiency gains entail the potential replacement of local production, which exerts downside pressures on domestic wages (particularly for unskilled workers whose production can be more easily substituted).

The new study investigates the effect of exporting and offshoring on local wages using detailed data for French manufacturing firms. It finds that the higher the exporting and offshoring activities of a firm, the higher the wages it pays on average. Exports increase wages for all worker types, but offshoring benefits executives and tends to, at best, leave blue-collar workers'' wages unchanged: each activity prompts different changes within the firm.

In most European countries, the incidence of collective bargaining is very high, with over 70% of workers covered by some kind of collective agreement. The study finds that in firms with collective bargaining, the wage gains associated with exports and offshoring are higher than in firms with no collective bargaining. Contrary to conventional wisdom, the researchers do not find evidence that collective bargaining reduces the wage inequalities created by offshoring.

Overall, the results support the long-standing idea that trade generates aggregate gains but also winners and losers, with the latter being on average the less skilled.

Firms that trade more intensively pay higher wages: firm-level average hourly wages are €15 for the lowest exporters versus €19 for the largest exporters. Figure 1 plots (separately for blue-collar workers and executives) average hourly wages by percentiles of the distribution of exports or offshoring per employee.

It shows that the impact of trade on the wages of particular workers depends on their occupation. The average hourly wage of blue-collar workers goes from €12 for the least intensive exporters to more than €14 for the most intensive exporters. Blue-collar workers'' wages vary much less with offshoring (from €12.10 to €12.80), whereas for executives, both exports and offshoring are positively related to their wages.

These findings are in line with the widespread idea that, on average, workers in the high-skilled occupations are complements to overseas production, while those in the relatively low-skilled occupations are substitutes.

Figure 2 shows that the wage gains to signing firm-level agreements (the difference between the dotted and plain curves) accrue to all worker categories, regardless of the trade intensity. For blue-collar workers, the wage gain associated with firm-level agreements (compared with industry agreements) increases with the level of exports and offshoring per worker. For executives, the wage gain associated with a firm-level agreement is also positive.

The researchers'' estimations do not turn up any significant differences in wage gains associated with collective agreements across workers'' categories. Bargaining implies a redistribution of trade-created rents from the shareholders to the workers, but it does not benefit the unskilled relatively more.

''Trade, Wages, and Collective Bargaining: Evidence from France'' by Juan Carluccio, Denis Fougère and Erwan Gautier is published in the May 2015 issue of the Economic Journal. Juan Carluccio is at the Banque de France and the University of Surrey. Denis Fougère is at CNRS in Paris. Erwan Gautier is at the University of Nantes.