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International Fragmentation and Relative Wages in the UK

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Author Info

  • Hijzen, Alexander

    ()
    (OECD)

  • Görg, Holger

    ()
    (Kiel Institute for the World Economy)

  • Hine, Robert C.

    ()
    (University of Nottingham)

Abstract

This paper re-examines the trade-based explanation of increased wage inequality in developed countries by focusing on international outsourcing. It is the first detailed study to address the effects of outsourcing on labour markets in the UK. In a recent paper, Feenstra and Hanson (1996) estimate the effect of international outsourcing on wage inequality in the US. This paper extends the FH approach by using more detailed definitions of outsourcing and skill. The analysis applies to UK manufacturing over the period 1982-1997. Extending the analysis to the 1990s is considered to be crucial as outsourcing is predominantly a phenomenon of the 1990s. The econometric results suggest that technical change, import penetration and outsourcing all play an important role in explaining UK wage inequality. Outsourcing may account for about half of the increase in domestic wage inequality.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 717.

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Length: 26 pages
Date of creation: Feb 2003
Date of revision:
Handle: RePEc:iza:izadps:dp717

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Keywords: fragmentation; outsourcing; trade; wages; skill-biased technological change;

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References

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  1. Robert E. Baldwin & Glen G. Cain, 2000. "Shifts In Relative U.S. Wages: The Role Of Trade, Technology, And Factor Endowments," The Review of Economics and Statistics, MIT Press, vol. 82(4), pages 580-595, November.
  2. Machin, S. & Van Reenen, J., 1997. "Technology and Changes in Skill Structure: Evidence from Seven OECD Countries," Papers, Centre for Economic Performance & Institute of Economics 24, Centre for Economic Performance & Institute of Economics.
  3. Feenstra, Robert C & Hanson, Gordon H, 1996. "Globalization, Outsourcing, and Wage Inequality," American Economic Review, American Economic Association, American Economic Association, vol. 86(2), pages 240-45, May.
  4. Paul Krugman, 1995. "Technology, Trade, and Factor Prices," NBER Working Papers 5355, National Bureau of Economic Research, Inc.
  5. Hijzen, Alexander, 2003. "Fragmentation, Productivity and Relative Wages in the UK: A General Equilibrium Approach," Royal Economic Society Annual Conference 2003, Royal Economic Society 108, Royal Economic Society.
  6. David Hummels & Jun Ishii & Kei-Mu Yi, 1999. "The nature and growth of vertical specialization in world trade," Staff Reports, Federal Reserve Bank of New York 72, Federal Reserve Bank of New York.
  7. Egger, Hartmut & Egger, Peter, 2001. "Cross-border sourcing and outward processing in EU manufacturing," The North American Journal of Economics and Finance, Elsevier, Elsevier, vol. 12(3), pages 243-256, November.
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  9. Salvatore Baldone & Fabio Sdogati & Lucia Tajoli, 2001. "Patterns and determinants of international fragmentation of production: Evidence from outward processing trade between the EU and Central Eastern European countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 137(1), pages 80-104, March.
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  21. Haskel, Jonathan & Slaughter, Matthew, 1999. "Trade, Technology and UK Wage Inequality," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2091, C.E.P.R. Discussion Papers.
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Citations

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Cited by:
  1. Keiko Ito & Kyoji Fukao, 2005. "Physical and Human Capital Deepening and New Trade Patterns in Japan," NBER Chapters, National Bureau of Economic Research, Inc, in: International Trade in East Asia, NBER-East Asia Seminar on Economics, Volume 14, pages 7-52 National Bureau of Economic Research, Inc.
  2. Egger, Hartmut & Kreickemeier, Udo, 2008. "International fragmentation: Boon or bane for domestic employment," European Economic Review, Elsevier, Elsevier, vol. 52(1), pages 116-132, January.
  3. R. Antonietti & D. Antonioli, 2007. "Production offshoring and the skill composition of Italian manufacturing firms A quasi-experimental analysis," Working Papers 593, Dipartimento Scienze Economiche, Universita' di Bologna.
  4. Helg, Rodolfo & Tajoli, Lucia, 2005. "Patterns of international fragmentation of production and the relative demand for labor," The North American Journal of Economics and Finance, Elsevier, Elsevier, vol. 16(2), pages 233-254, August.
  5. Koskela, Erkki & Stenbacka, Rune, 2007. "Equilibrium Unemployment with Outsourcing and Wage Solidarity Under Labour Market Imperfections," IZA Discussion Papers 2733, Institute for the Study of Labor (IZA).
  6. Erkki Koskela & Rune Stenbacka, 2007. "Equilibrium Unemployment with Outsourcing and Wage Solidarity under Labour Market Imperfections," CESifo Working Paper Series 1988, CESifo Group Munich.
  7. Koskela, Erkki & Stenbacka, Rune, 2010. "Equilibrium unemployment with outsourcing and wage solidarity under labour market imperfections," European Economic Review, Elsevier, Elsevier, vol. 54(3), pages 376-392, April.
  8. Rodolfo Helg & Lucia Tajoli, 2004. "Patterns of International Fragmentation of Production and Implications for the Labor Markets," International Trade, EconWPA 0405002, EconWPA.
  9. Mary Amiti & Shang-Jin Wei, 2005. "Fear of service outsourcing: is it justified?," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 20(42), pages 308-347, 04.
  10. Nicholas Sim, 2004. "International production sharing and economic development: moving up the value-chain for a small-open economy," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 11(14), pages 885-889.
  11. Sourafel Girma & Holger Görg, 2004. "Outsourcing, Foreign Ownership, and Productivity: Evidence from UK Establishment-level Data," Review of International Economics, Wiley Blackwell, Wiley Blackwell, vol. 12(5), pages 817-832, November.
  12. Fontagne, Lionel & Mirza, Daniel, 2007. "International trade and rent sharing among developed and developing countries," Economic Modelling, Elsevier, Elsevier, vol. 24(3), pages 523-558, May.
  13. Carmen Díaz Mora & Rosario Gandoy Juste, . "Estrategias de fragmentación de la producción: Una realidad en la industria española?," Studies on the Spanish Economy 180, FEDEA.
  14. Swenson, Deborah L., 2004. "Entry costs and outsourcing decisions: evidence from the U.S. overseas assembly provision," The North American Journal of Economics and Finance, Elsevier, Elsevier, vol. 15(3), pages 267-286, December.
  15. Alexander Hijzen, 2004. "Trade in Intermediates and the Rise in Wage Inequality in the UK: A GNP Function Approach," Econometric Society 2004 North American Summer Meetings, Econometric Society 224, Econometric Society.

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