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Equilibrium unemployment with outsourcing and wage solidarity under labour market imperfections

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  • Koskela, Erkki
  • Stenbacka, Rune
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    Abstract

    We evaluate the effects of outsourcing and wage solidarity on wage formation and equilibrium unemployment in a heterogeneous labour market, where wages are determined by a monopoly labour union. We find that outsourcing promotes the wage dispersion between the high- and low-skilled workers. When the labour union adopts a solidaristic wage policy, it will dampen this tendency. Further, higher outsourcing will increase equilibrium unemployment among the high-skilled workers, whereas it will reduce it among the low-skilled workers. Overall, outsourcing will reduce economy-wide equilibrium unemployment under the reasonable condition that the proportion of high-skilled workers is sufficiently low.

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    Bibliographic Info

    Article provided by Elsevier in its journal European Economic Review.

    Volume (Year): 54 (2010)
    Issue (Month): 3 (April)
    Pages: 376-392

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    Handle: RePEc:eee:eecrev:v:54:y:2010:i:3:p:376-392

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    Web page: http://www.elsevier.com/locate/eer

    Related research

    Keywords: Outsourcing Wage solidarity Labour market imperfections Equilibrium unemployment;

    References

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    Cited by:
    1. Felbermayr, Gabriel & Prat, Julien & Schmerer, Hans-Jörg, 2009. "Trade and Unemployment: What Do the Data Say?," IZA Discussion Papers 4184, Institute for the Study of Labor (IZA).
    2. Muysken, Joan & Vallizadeh, Ehsan & Ziesemer, Thomas, 2012. "Migration, Unemployment, and Over-qualification: A Specific-Factors Model Approach," MPRA Paper 43057, University Library of Munich, Germany.
    3. Koskela, Erkki, 2010. "Analysis of Labor Tax Progression under Heterogeneous Domestic Labor Markets and Flexible Outsourcing," IZA Discussion Papers 5313, Institute for the Study of Labor (IZA).
    4. Koskela, Erkki & König, Jan, 2011. "The Role of Profit Sharing in Dual Labour Markets with Flexible Outsourcing," IZA Discussion Papers 5798, Institute for the Study of Labor (IZA).
    5. Erkki Koskela, 2010. "Analysis of Labor Tax Progression under Heterogeneous Domestic Labor Markets and Flexible Outsourcing," CESifo Working Paper Series 3239, CESifo Group Munich.

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