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International Outsourcing and Labour with Sector-specific Human Capital

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Author Info
Kurt Kratena (WIFO)

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Abstract

This paper attempts to quantify the impact of outsourcing on production patterns and the labour market in a two-sector specific-factors model with skilled labour (specific factor) and unskilled labour (mobile factor). Outsourcing can be compared to the case, where trade liberalisation leads to trade in final goods and a change in relative prices. In the latter case a downward pressure on the wage rate for skilled labour in one sector and a wage rise for skilled labour in the other sector indicate significant adjustment costs, whereas with outsourcing an outcome of rising wage rates for skilled labour in both sectors is feasible. The full impact of outsourcing depends on the relative weight of the "factor savings" and the "cost savings" effect. The negative impact on the unskilled wage rate is similar in both cases and depends on the macroeconomic relevance of the respective shocks.

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Publisher Info
Paper provided by WIFO in its series WIFO Working Papers with number 272.

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Length: 27 pages
Date of creation: 26 Apr 2006
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Handle: RePEc:wfo:wpaper:y:2006:i:272

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Related research
Keywords: Outsourcing; trade liberalisation; specific factors model;

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References listed on IDEAS
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  1. Deardorff, A.V., 1998. "Fragmentation Across Cones," Papers 98-14, Michigan - Center for Research on Economic & Social Theory.
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  2. Egger, Hartmut & Falkinger, Josef, 2003. "The distributional effects of international outsourcing in a 2 x 2 production model," The North American Journal of Economics and Finance, Elsevier, vol. 14(2), pages 189-206, August. [Downloadable!] (restricted)
  3. Sven W. Arndt, 1997. "Globalization and the Open Economy," Working Papers 9701, Lowe Institute of Political Economy. [Downloadable!]
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  4. Mary Lovely & Douglas Nelson, 2002. "Intra-industry trade as an indicator of labor market adjustment," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 138(2), pages 179-206, June. [Downloadable!] (restricted)
  5. Kohler, Wilhelm, 2001. "A specific-factors view on outsourcing," The North American Journal of Economics and Finance, Elsevier, vol. 12(1), pages 31-53, March. [Downloadable!] (restricted)
  6. Wilhelm Kohler, 2004. "Aspects of International Fragmentation," Review of International Economics, Blackwell Publishing, vol. 12(5), pages 793-816, November. [Downloadable!] (restricted)
  7. Brecher, Richard A., 1974. "Optimal commercial policy for a minimum-wage economy," Journal of International Economics, Elsevier, vol. 4(2), pages 139-149, May. [Downloadable!] (restricted)
  8. Marius Brülhart & Robert Elliott, 2002. "Labour-market effects of intra-industry trade: Evidence for the United Kingdom," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 138(2), pages 207-228, June. [Downloadable!] (restricted)
  9. Donald R. Davis, 1996. "Does European Unemployment Prop Up American Wages?," Harvard Institute of Economic Research Working Papers 1752, Harvard - Institute of Economic Research.
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  10. Neary, J Peter, 1978. "Short-Run Capital Specificity and the Pure Theory of International Trade," Economic Journal, Royal Economic Society, vol. 88(351), pages 488-510, September. [Downloadable!] (restricted)
  11. Wilhelm Kohler, 2003. "The Distributional Effects of International Fragmentation," German Economic Review, Blackwell Publishing, vol. 4(1), pages 89-120, February.
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