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Does Outsourcing Reduce Wages in the Low-Wage Service Occupations? Evidence from Janitors and Guards

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  • Arindrajit Dube
  • Ethan Kaplan

Abstract

Outsourcing of labor services grew substantially during the 1980s and 1990s and was associated with lower wages, fewer benefits, and lower rates of unionization. The authors focus on two occupations for which they can identify outsourcing in those two decades using industry and occupation codes: janitors and guards. Across a wide array of specifications, they find that the outsourcing wage penalty ranged from 4% to 7% for janitors and from 8% to 24% for guards. Their findings on health benefits mirror those on wages. Evidence suggests that the outsourcing penalty was not due to compensating differentials for higher benefits or lower hours, skill differences, or the types of industries that outsourced. Rather, outsourcing seems to have reduced labor market rents for workers, especially for those in the upper half of the occupational wage distribution. Industries with higher historical wage premia were more likely to outsource service work.

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Bibliographic Info

Article provided by ILR Review, Cornell University, ILR School in its journal ILR Review.

Volume (Year): 63 (2010)
Issue (Month): 2 (January)
Pages: 287-306

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Handle: RePEc:ilr:articl:v:63:y:2010:i:2:p:287-306

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  1. Charles Brown & James L. Medoff, 1989. "The Employer Size-Wage Effect," NBER Working Papers 2870, National Bureau of Economic Research, Inc.
  2. Topel, Robert H & Ward, Michael P, 1992. "Job Mobility and the Careers of Young Men," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 439-79, May.
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  5. Lewis M. Segal & Daniel G. Sullivan, 1998. "Wage differentials for temporary services work: evidence from administrative data," Working Paper Series WP-98-23, Federal Reserve Bank of Chicago.
  6. Akerlof, George A & Yellen, Janet L, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 255-83, May.
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Cited by:
  1. Card, David & Heining, Jörg & Kline, Patrick, 2012. "Workplace heterogeneity and the rise of West German wage inequality," IAB Discussion Paper 201226, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  2. Sasan Bakhtiari & Robert Breunig, 2012. "Outsourcing and Innovation: An Empirical Study of Causes and Effects," Discussion Papers 2012-35, School of Economics, The University of New South Wales.
  3. Sasan Bakhtiari, 2013. "Firm Size Evolution and Outsourcing," Discussion Papers 2013-07, School of Economics, The University of New South Wales.
  4. Sasan Bakhtiari, 2011. "Efficiency and Outsourcing: Evidence from Australian Manufacturing," Discussion Papers 2012-07, School of Economics, The University of New South Wales.

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