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Foreign outsourcing, labour demand and the choice of functional form

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Author Info
Michel Dumont () (University of Antwerp)

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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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File URL: http://www4.cema.edu.ar/pjae/m/138Dumont200611
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Publisher 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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Related research
Keywords: foreign outsourcing; labour demand; flexible cost function specification;

Find related papers by JEL classification:
F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing

Cited by:
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  1. Bernhard Michel & François Rycx, 2009. "Does Offshoring of Materials and Business Services Affect Employment? Evidence from a Small Open Economy," Working Papers DULBEA 09-10.RS, Université libre de Bruxelles, Department of Applied Economics (DULBEA). [Downloadable!]
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