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Unemployment and Welfare Consequences of International Outsourcing under Monopolistic Competition

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Abstract

This 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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File URL: http://www1.carleton.ca/economics/ccms/wp-content/ccms-files/cep11-07.pdf
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Bibliographic Info

Paper provided by Carleton University, Department of Economics in its series Carleton Economic Papers with number 11-07.

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Length: 24 pages
Date of creation: 06 Oct 2011
Date of revision:
Publication status: Published: Carleton Economic Papers
Handle: RePEc:car:carecp:11-07

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Keywords: Outsourcing; Offshoring; Unemployment; Welfare; Variety;

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  1. Hartmut Egger & Udo Kreickemeier, 2005. "International Fragmentation: Boon or Bane for Domestic Employment?," CESifo Working Paper Series 1595, CESifo Group Munich.
  2. Devashish Mitra & Priya Ranjan, 2007. "Offshoring and Unemployment," Working Papers 060719, University of California-Irvine, Department of Economics.
  3. 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.
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