Technology resistance and globalisation with trade unions: the choice between employment protection and flexicurity

Abstract

We analyse how di.erent labour market institutions — employment protection versus ‘flexicurity’ — a.ect technology adoption in unionised firms. The analysis is cast in a setting of corporate globalisation, where domestic unionised labour face the double threat of labour-saving technological innovations and international outsourcing of domestic production. In the main part of the analysis, we analyse trade unions’ incentives to oppose or endorse the adoption of new technology. Our main result is that both weaker employment protection and a higher reservation wage for unionised workers (interpreted as increased ‘flexicurity’) contribute to making trade unions more willing to accept labour-saving technological change. Furthermore, these e.ects are reinforced by globalisation. In an extension to the main analysis, we endogenise the technological progress by studying firms’ incentives to invest in new technology and find that these incentives are also generally strengthened in a labour market with more ‘flexicurity’.