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Flexible Outsourcing and the Impacts of Labour Taxation in European Welfare States

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Author Info

  • Koskela, Erkki

    ()
    (University of Helsinki)

  • Poutvaara, Panu

    ()
    (University of Munich)

Abstract

In European Welfare States, unskilled workers are typically unionized, while the wage formation of skilled workers is more competitive. To focus on this aspect, we analyze how flexible international outsourcing and labour taxation affect wage formation, employment and welfare in dual domestic labour markets. Higher productivity of outsourcing, lower cost of outsourcing and lower factor price of outsourcing increase wage dispersion between the skilled and unskilled workers. Increasing wage tax progression of unskilled workers decreases the wage rate and increases the labour demand of unskilled workers. It decreases the welfare of unskilled workers and increases both the welfare of skilled workers and the profit of firms.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3699.

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Length: 37 pages
Date of creation: Sep 2008
Date of revision:
Handle: RePEc:iza:izadps:dp3699

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Keywords: flexible outsourcing; dual labour market; impacts of labour taxation; welfare state;

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References

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Citations

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Cited by:
  1. Erkki Koskela & Jan König, 2009. "The Role of Profit Sharing in a Dual Labour Market with Flexible Outsourcing," CESifo Working Paper Series 2533, CESifo Group Munich.
  2. Aronsson, Thomas & Koskela, Erkki, 2009. "Optimal Redistributive Taxation and Provision of Public Input Goods in an Economy with Outsourcing and Unemployment," IZA Discussion Papers 4196, Institute for the Study of Labor (IZA).
  3. Koskela, Erkki & König, Jan, 2009. "Can Profit Sharing Lower Flexible Outsourcing? A Note," IZA Discussion Papers 4063, Institute for the Study of Labor (IZA).
  4. Erkki Koskela & Jan König, 2009. "Can Profit Sharing Lower Flexible Outsourcing? A Note," CESifo Working Paper Series 2606, CESifo Group Munich.

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