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Foreign outsourcing, labour demand and the choice of functional form

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Abstract

Elasticity of the demand for low-skilled and high-skilled labour in the European Union with respect to foreign outsourcing is estimated, using alternative flexible cost functions. The choice of functional form is apparently not immaterial, as different forms can lead to conflicting conclusions. Tests that can help to discriminate between different forms of functional specification show that a traditional generalized Leontief cost function is often rejected in favour of a minflex Laurent generalized Leontief cost function. Overall, the estimation results show that foreign outsourcing had a significant impact on the demand for low-skilled and high-skilled workers in the sample period. The pattern is however industryspecific and suggests, in line with some recent theoretical models, an ambiguous relationship between outsourcing and labour demand. There is some evidence that high-skilled labour and capital are (relative) complements.

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Bibliographic Info

Article provided by Universidad del CEMA in its journal Journal of Applied Economics.

Volume (Year): IX (2006)
Issue (Month): (November)
Pages: 255-273

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Handle: RePEc:cem:jaecon:v:9:y:2006:n:2:p:255-273

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Keywords: foreign outsourcing; labour demand; flexible cost function specification;

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References

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Cited by:
  1. Bernhard Michel & François Rycx, 2009. "Does Offshoring of Materials and Business Services Affect Employment? Evidence from a Small Open Economy," DULBEA Working Papers 09-10.RS, ULB -- Universite Libre de Bruxelles.
  2. Bart Hertveldt & Bernhard Michel, 2013. "Offshoring and the Skill Structure of Labour Demand in Belgium," De Economist, Springer, vol. 161(4), pages 399-420, December.
  3. Nathalie Chusseau & Michel Dumont, 2012. "Growing income inequalities in advanced countries," Working Papers 260, ECINEQ, Society for the Study of Economic Inequality.
  4. Nathalie Chusseau & Michel Dumont, 2012. "Growing Income Inequalities in Advanced," Working Papers hal-00993359, HAL.
  5. Herr, Hansjörg & Ruoff, Bea, 2014. "Wage dispersion : empirical developments, explanations, and reform options," ILO Working Papers 485325, International Labour Organization.

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