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Winners and Losers: Fragmentation, Trade and Wages Revisited

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  • Ingo Geishecker
  • Holger Görg

Abstract

Our paper investigates the link between international outsourcing and wages utilising a large household panel and combining it with industry level information on industries' outsourcing activities from input-output tables. By doing so we can arguably overcome the potential aggregation bias as well as other shortcomings that affect industry level studies. We find that outsourcing has had a marked impact on wages. Distinguishing three skill categories we find evidence that outsourcing reduced the real wage for workers in the lowest skill categories by up to 1.8% while it increased real wages for high-skilled workers by up to 3.3%. This result is robust to a number of different specifications.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.41040.de/dp385.pdf
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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 385.

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Length: 27 p.
Date of creation: 2003
Date of revision:
Handle: RePEc:diw:diwwpp:dp385

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Keywords: Outsourcing; Fragmentation; Skills; Wages;

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References

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  1. Christoph Schmidt & Klaus Zimmerman, 1990. "Work Characteristics, Firm Size and Wages," Working Papers 644, Princeton University, Department of Economics, Industrial Relations Section..
  2. Moulton, Brent R, 1990. "An Illustration of a Pitfall in Estimating the Effects of Aggregate Variables on Micro Unit," The Review of Economics and Statistics, MIT Press, vol. 72(2), pages 334-38, May.
  3. Bob Anderton & Paul Brenton, 1998. "Outsourcing and Low-Skilled Workers in the UK," CSGR Working papers series 12/98, Centre for the Study of Globalisation and Regionalisation (CSGR), University of Warwick.
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  5. Alan Krueger & Jorn-Steffen Pischke, 1992. "A Comparative Analysis of East and West German Labor Markets: Before and After Unification," Working Papers 686, Princeton University, Department of Economics, Industrial Relations Section..
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  7. Head, Keith & Ries, John, 2002. "Offshore production and skill upgrading by Japanese manufacturing firms," Journal of International Economics, Elsevier, vol. 58(1), pages 81-105, October.
  8. Eswar Prasad, 2000. "The Unbearable Stability of the German Wage Structure," IMF Working Papers 00/22, International Monetary Fund.
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  10. Ingo Geishecker, 2002. "Outsourcing and the Demand for Low-skilled Labour in German Manufacturing: New Evidence," Discussion Papers of DIW Berlin 313, DIW Berlin, German Institute for Economic Research.
  11. Hijzen, Alexander, 2003. "Fragmentation, Productivity and Relative Wages in the UK: A General Equilibrium Approach," Royal Economic Society Annual Conference 2003 108, Royal Economic Society.
  12. Eli Berman & John Bound & Stephen Machin, 1997. "Implications of Skill-Biased Technological Change: International Evidence," Boston University - Institute for Economic Development 78, Boston University, Institute for Economic Development.
  13. 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.
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  17. Arndt, Sven W., 1997. "Globalization and the open economy," The North American Journal of Economics and Finance, Elsevier, vol. 8(1), pages 71-79.
  18. Robert C. Feenstra & Gene M. Grossman & Douglas A. Irwin (ed.), 1996. "The Political Economy of Trade Policy: Papers in Honor of Jagdish Bhagwati," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061864, December.
  19. Venables, Anthony J., 1999. "Fragmentation and multinational production," European Economic Review, Elsevier, vol. 43(4-6), pages 935-945, April.
  20. Richard B. Freeman, 1995. "Are Your Wages Set in Beijing?," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 15-32, Summer.
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  22. Bernd Fitzenberger, 1999. "International Trade and the Skill Structure of Wages and Employment in West Germany," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 219(1+2), pages 67-89, July.
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Citations

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Cited by:
  1. Chiara BROCCOLINI & Alessia LO TURCO & Andrea PRESBITERO & Stefano STAFFOLANI, 2007. "International Outsourcing vs. ICT in explaining the wage gap in Italian Manufacturing," Working Papers 299, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
  2. Polgár, Éva Katalin & Wörz, Julia, 2010. "Trade with central and eastern Europe: Is it really a threat to wages in the west?," Working Paper Series 1244, European Central Bank.
  3. Ogloblin, C, 2004. "Global Outsourcing of Human Capital and the Incidence of Unemployment in the United States," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 4(3).
  4. Michael Landesmann & Robert Stehrer, 2009. "South-North Integration, Outsourcing and Skills," wiiw Research Reports 353, The Vienna Institute for International Economic Studies, wiiw.

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