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Equilibrium Unemployment with Outsourcing under Labour Market Imperfections

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Author Info
Erkki Koskela ()
Rune Stenbacka
Abstract

We study the various consequences of and the incentives for outsourcing. We argue that the wage elasticity of labour demand increases as a function of the share of outsourcing, which is a result consistent with existing empirical research. Furthermore, we show that a production mode with a higher proportion of outsourcing activity reduces the negotiated wage in the high-wage country with an imperfectly competitive labour market so that outsourcing reduces equilibrium unemployment. Finally, we characterize the optimal production mode and show that stronger labour market imperfections lead to a production mode with a higher share of outsourcing.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 1892.

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Date of creation: 2007
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Handle: RePEc:ces:ceswps:_1892

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Related research
Keywords: outsourcing; labour market imperfections; equilibrium unemployment;

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Find related papers by JEL classification:
E23 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Production
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search

References listed on IDEAS
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.:

  1. Amiti, Mary & Wei, Shang-Jin, 2004. "Fear of Outsourcing: Is It Justified?," CEPR Discussion Papers 4719, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  2. Skaksen, Mette Yde & Sorensen, Jan Rose, 2001. "Should trade unions appreciate foreign direct investment," Journal of International Economics, Elsevier, vol. 55(2), pages 379-390, December. [Downloadable!] (restricted)
  3. Nickell, Stephen & Layard, Richard, 1999. "Labor market institutions and economic performance," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 46, pages 3029-3084 Elsevier. [Downloadable!] (restricted)
    Other versions:
  4. 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. [Downloadable!]
  5. Kjell Erik Lommerud & Frode Meland & Odd Rune Straume, 2005. "Can Deunionization Lead to International Outsourcing?," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  6. Pierre Cahuc & André Zylberberg, 2004. "Labor Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 026203316x, December.
  7. Jean-Pierre DANTHINE & Jennifer HUNT, 1992. "Wage Bargaining Structure, Employment and Economic Integration," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9204, Université de Lausanne, Faculté des HEC, DEEP.
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  8. Glass, Amy Jocelyn & Saggi, Kamal, 2001. "Innovation and wage effects of international outsourcing," European Economic Review, Elsevier, vol. 45(1), pages 67-86, January. [Downloadable!] (restricted)
  9. Jan Rose Skaksen, 2004. "International outsourcing when labour markets are unionized," Canadian Journal of Economics, Canadian Economics Association, vol. 37(1), pages 78-94, February. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. Erkki Koskela & Rune Stenbacka, 2007. "Equilibrium Unemployment with Outsourcing and Wage Solidarity Under Labour Market Imperfections," IZA Discussion Papers 2733, Institute for the Study of Labor (IZA). [Downloadable!]
  2. Erkki Koskela & Rune Stenbacka, 2007. "Equilibrium Unemployment with Outsourcing and Wage Solidarity under Labour Market Imperfections," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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