Multinationals and labour unions: Are their interests antithetical?

This paper explores multinational production-location decision in the context of international tax competition and unionisation of labour market. The innovation of this paper is to make multinational production-location decision, tax packages and union-government wage bargaining endogenous that provides a framework in which optimal tax policy and labour market outcomes are explained in the light of multinational production-location, or investment, decision. It offers a two-tier game to establish an equilibrium in which the optimal multinational investment in a country is shown to be an increasing function of the domestic wage share. The paper hence argues that strong unionisation does not necessarily impede multinational investment, contrary to a much-abused conventional wisdom that presupposes a strong antagonism between multinationals and labour unions. 'International competitiveness' of a nation is thus not compromised with a strong labour union.