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Equilibrium unemployment with outsourcing under labour market imperfections

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  • Koskela, Erkki
  • Stenbacka, Rune
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    Abstract

    We study the effects of international outsourcing on equilibrium unemployment in a high-wage economy with labour market imperfections. We demonstrate, consistent with empirical results, that the wage elasticity of labour demand is increasing as a function of outsourcing. Furthermore, we show that a production mode with more outsourcing reduces the negotiated wage in a high-wage country with labour market imperfections if the relative bargaining power of the labour union is sufficiently high. Under such circumstances outsourcing reduces equilibrium unemployment. Finally, we characterize the optimal production mode showing that stronger labour market imperfections induce a production mode with more outsourcing.

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    Bibliographic Info

    Article provided by Elsevier in its journal Labour Economics.

    Volume (Year): 16 (2009)
    Issue (Month): 3 (June)
    Pages: 284-290

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    Handle: RePEc:eee:labeco:v:16:y:2009:i:3:p:284-290

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

    Related research

    Keywords: Outsourcing Equilibrium unemployment Labour market imperfections Wage bargaining Production mode;

    References

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    1. Carsten Eckel & Hartmut Egger, 2006. "Wage Bargaining and Multinational Firms in General Equilibrium," CESifo Working Paper Series 1711, CESifo Group Munich.
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    18. Mine Zeynep Senses, 2006. "The Effects of Outsourcing on the Elasticity of Labor Demand," Working Papers 06-07, Center for Economic Studies, U.S. Census Bureau.
    19. Sinn, Hans-Werner, 2006. "Introduction," Munich Reprints in Economics 19604, University of Munich, Department of Economics.
    20. Pierre Cahuc & André Zylberberg, 2004. "Labor Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 026203316x, December.
    21. Rowthorn, R E, 1992. "Centralisation, Employment and Wage Dispersion," Economic Journal, Royal Economic Society, vol. 102(412), pages 506-23, May.
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    Citations

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    Cited by:
    1. Kjell Erik Lommerud & Frode Meland & Odd Rune Straume, 2010. "North-South Technology Transfer in Unionised Multinationals," CESifo Working Paper Series 3273, CESifo Group Munich.
    2. Böckerman, Petri & Riihimäki, Elisa, 2009. "International outsourcing and labour demand: Evidence from Finnish firm-level data," MPRA Paper 16903, University Library of Munich, Germany.
    3. Matsuoka, Yuji & Fukushima, Marcelo, 2010. "Time zones, shift working and international outsourcing," International Review of Economics & Finance, Elsevier, vol. 19(4), pages 769-778, October.
    4. 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.
    5. Erkki Koskela, 2010. "Outsourcing Cost and Tax Progression under Nash Wage Bargaining with Flexible Outsourcing," CESifo Working Paper Series 3142, CESifo Group Munich.
    6. Jan König & Erkki Koskela, 2011. "Does International Outsourcing Really Lower Workers’ Income?," Journal of Labor Research, Springer, vol. 32(1), pages 21-38, March.

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