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Policy Evaluation in the Presence of Outsourcing : Global Competitiveness versus Political Feasibility

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Author Info

  • Subhayu Bandyopadhyay

    (West Virginia University and IZA)

  • Howard J . Wall

    (Federal Reserve Bank of St. Louis)

Abstract

With outsourcing comes a perceived tension between the competitive pressures faced by domestic firms and the effect that outsourcing has on domestic workers. To address this tension, we present a general-equilibrium model with an oligopolistic export sector and a competitive import-competing sector. When there is a minimum wage, an outsourcing tax switches jobs to unemployed natives . In this case, the policy is both politically popular and economically sound because it raises national income . This is possible because of the pre-existing distortion in the labor market caused by the minimum wage. The effect of an export subsidy is less clear . It may or may not be justified on welfare grounds . Also, increased international competition has no effect on the level of outsourcing, but the direction of its effect on unemployment and national income depends on the relative factor intensities of the two sectors. The paper is extended to consider the scenarios of wage flexibility and price competition.

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File URL: http://www.be.wvu.edu/div/econ//work/pdf_files/06-13.pdf
File Function: First version, 2006
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Bibliographic Info

Paper provided by Department of Economics, West Virginia University in its series Working Papers with number 06-13 Classification-.

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Length: 24 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:wvu:wpaper:06-13

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Cited by:
  1. Alina Hagiu & Emilia Clipici, 2009. "The National And The European Union Business Environment In The Context Of The Knowledge-Based Economy," JOURNAL STUDIA UNIVERSITATIS BABES-BOLYAI NEGOTIA, Babes-Bolyai University, Faculty of Business.

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