DP4095 | On Footloose Industries, Asymmetric Information and Wage Bargaining

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If capital becomes internationally mobile but labor does not, is the bargaining outcome for workers worsened? In this paper we show that the answer to this question depends critically on the information structure of the bargaining process. In particular, we demonstrate a hitherto underappreciated informational role of capital mobility in determining the distribution of output between workers and employers. In doing so we bring together three strands of literature not often seen together--incentive compatible contracting, union-employer bargaining, and the consequences of capital mobility.