Argument: Firms often threaten with outsourcing unions demanding higher wages

Issue Report: Free trade


  • Robert E. Scott. “The high price of ‘free’ trade”. Economic Policy Institute. November 17, 2003 – “‘threat effects’ arise when firms threaten to close plants and move them abroad while bargaining with workers over wages and working conditions. Employers’ credible threats to relocate plants, outsource portions of their operations, and purchase intermediate goods and services directly from foreign producers can have a substantial impact on workers’ bargaining positions. The use of these kinds of threats is widespread. A Wall Street Journal survey in 1992 reported that one-fourth of almost 500 American corporate executives polled admitted that they were ‘very likely’ or ‘somewhat likely’ to use NAFTA as a bargaining chip to hold down wages (Tonelson 2000, 47). In a unique study of union organizing drives in 1993 though 1995, it was found that more than 50% of all employers made threats to close all or part of their plants during organizing drives (Bronfenbrenner 1997b). This study also found that plant closing threats in National Labor Relations Board (NLRB) union certification elections nearly doubled following the implementation of NAFTA, and that threat rates were substantially higher in mobile industries, where employers can credibly threaten to shut down or move their operations in response to union activity.
Bronfenbrenner updated her earlier study with a new survey of threat effects in 1998 and 1999, five years after NAFTA took effect (Bronfenbrenner 2000). In her updated study, Bronfenbrenner found that most employers continue to threaten to close all or part of their operations during organizing drives, despite the fact that, in the last five years, unions have shifted their organizing activity away from industries most impacted by trade deficits and capital flight (e.g., apparel and textile, electronics components, food processing, and metal fabrication). According to the updated study, the threat rate increased from 62% to 68% in mobile industries such as manufacturing, communications, and wholesale distribution. The threat rate was only 36% in immobile industries such as construction, health care, and education. Meanwhile, in 18% of union certification election campaigns with threats, the employer directly threatened to move to another country, usually Mexico, if the union succeeded in winning the election.
In the context of ongoing U.S. trade deficits and rising levels of trade liberalization, the pervasiveness of employer threats to close or relocate plants may conceivably have a greater impact on real wage growth for production workers than actual import competition. There are no empirical studies of the effects of such threats on U.S. wages, so such costs have been underappreciated.”