We critically consider the conventional belief that the attractiveness of international outsourcing lies in cheaper … firms facing unionised domestic labour market choose between producing an intermediate in-house or outsourcing it to a non …-unionised foreign supplier that makes a relationship specific investment in developing the intermediate. We show that outsourcing …

intermediate good in-house and outsourcing it to a nonunionised foreign supplier that makes a relationship-specific investment in … developing the intermediate. The paper sheds light on the issue of whether international outsourcing offers a means to ‘escape …' the power of domestic unions and on the existence of intra-industry wage dispersion. We show that outsourcing typically …