Unemployment and Welfare Consequences of International Outsourcing under Monopolistic Competition
AbstractThis paper challenges the conventional academic view that international outsourcing is just another form of gainful trade. Contrary to this view, we show that labor-service outsourcing can reduce the high-wage country's welfare even when product-market trade is beneficial, within a model that combines involuntary unemployment and monopolistic competition. Outsourcing's impact on welfare is worsened by a definite loss of jobs and a possible contraction in the range of varieties produced worldwide. While owners of capital benefit from outsourcing under certain conditions, labor's welfare always falls.
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Bibliographic InfoPaper provided by Carleton University, Department of Economics in its series Carleton Economic Papers with number 11-07.
Length: 24 pages
Date of creation: 06 Oct 2011
Date of revision:
Publication status: Published: Carleton Economic Papers
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Find related papers by JEL classification:
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
- F20 - International Economics - - International Factor Movements and International Business - - - General
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Richard Brecher & Zhiqi Chen, 2008.
"Unemployment of Skilled and Unskilled Labor in an Open Economy: International Trade, Migration, and Outsourcing,"
Carleton Economic Papers
08-07, Carleton University, Department of Economics, revised Nov 2010.
- Richard A. Brecher & Zhiqi Chen, 2010. "Unemployment of Skilled and Unskilled Labor in an Open Economy: International Trade, Migration, and Outsourcing," Review of International Economics, Wiley Blackwell, vol. 18(5), pages 990-1000, November.
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"International Fragmentation: Boon or Bane for Domestic Employment?,"
CESifo Working Paper Series
1595, CESifo Group Munich.
- Egger, Hartmut & Kreickemeier, Udo, 2008. "International fragmentation: Boon or bane for domestic employment," European Economic Review, Elsevier, vol. 52(1), pages 116-132, January.
- Mitra, Devashish & Ranjan, Priya, 2007.
"Offshoring and Unemployment,"
IZA Discussion Papers
2805, Institute for the Study of Labor (IZA).
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