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

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  • Dube, Arindrajit
  • Kaplan, Ethan

Abstract

Outsourcing of labor services grew substantially during the eighties and nineties, and was associated with lower wages, less benefits, and lower rates of unionization. We focus on two occupations for which we can identify outsourcing using industry and occupation codes: janitors and guards. Across a wide array of specifications, we find that the outsourcing wage penalty ranges between 4% and 7% for janitors and between 8% and 24% for guards. Our findings on health benefits mirror those on wages. We provide evidence that the outsourcing penalty is not due to compensating differentials for higher benefits or lower hours, skill differences, or the type of industries which outsource. Overall, the evidence suggests that outsourcing has 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 over this period.

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Bibliographic Info

Paper provided by Institute of Industrial Relations, UC Berkeley in its series Institute for Research on Labor and Employment, Working Paper Series with number qt6s89498v.

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Date of creation: 28 Aug 2008
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Handle: RePEc:cdl:indrel:qt6s89498v

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  1. BORJAS, GEORGE J & Ramey, Valerie A, 2000. "Market Responses to Interindustry Wage Differentials," University of California at San Diego, Economics Working Paper Series qt1rn7d0hd, Department of Economics, UC San Diego.
  2. Katharine G. Abraham & Susan K. Taylor, 1993. "Firms' Use of Outside Contractors: Theory and Evidence," NBER Working Papers 4468, National Bureau of Economic Research, Inc.
  3. Robert H. Topel & Michael P. Ward, 1988. "Job Mobility and the Careers of Young Men," NBER Working Papers 2649, National Bureau of Economic Research, Inc.
  4. Grossman, Sanford J & Hart, Oliver, 1985. "The Cost and Benefits of Ownership: A Theory of Vertical and Lateral Integration," CEPR Discussion Papers 70, C.E.P.R. Discussion Papers.
  5. Gibbons, Robert & Katz, Lawrence F, 1992. "Does Unmeasured Ability Explain Inter-industry Wage Differentials?," Review of Economic Studies, Wiley Blackwell, vol. 59(3), pages 515-35, July.
  6. Freeman, Richard B, 1984. "Longitudinal Analyses of the Effects of Trade Unions," Journal of Labor Economics, University of Chicago Press, vol. 2(1), pages 1-26, January.
  7. 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.
  8. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-93, March.
  9. Brown, Charles & Medoff, James, 1989. "The Employer Size-Wage Effect," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1027-59, October.
  10. 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.
  11. Samuel Berlinski, 2008. "Wages and Contracting Out: Does the Law of One Price Hold?," British Journal of Industrial Relations, London School of Economics, vol. 46(1), pages 59-75, 03.
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Cited by:
  1. 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.
  2. Sasan Bakhtiari, 2013. "Firm Size Evolution and Outsourcing," Discussion Papers 2013-07, School of Economics, The University of New South Wales.
  3. Card, David & Heining, Jörg & Kline, Patrick, 2013. "Workplace Heterogeneity and the Rise of West German Wage Inequality," IZA Discussion Papers 7200, Institute for the Study of Labor (IZA).
  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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