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Foreign outsourcing, labour demand and the choice of functional form

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Abstract

Elasticity of the demand for low-skilled and high-skilled labour in the European Union with respect to foreign outsourcing is estimated, using alternative flexible cost functions. The choice of functional form is apparently not immaterial, as different forms can lead to conflicting conclusions. Tests that can help to discriminate between different forms of functional specification show that a traditional generalized Leontief cost function is often rejected in favour of a minflex Laurent generalized Leontief cost function. Overall, the estimation results show that foreign outsourcing had a significant impact on the demand for low-skilled and high-skilled workers in the sample period. The pattern is however industryspecific and suggests, in line with some recent theoretical models, an ambiguous relationship between outsourcing and labour demand. There is some evidence that high-skilled labour and capital are (relative) complements.

Suggested Citation

  • Michel Dumont, 2006. "Foreign outsourcing, labour demand and the choice of functional form," Journal of Applied Economics, Universidad del CEMA, vol. 9, pages 255-273, November.
  • Handle: RePEc:cem:jaecon:v:9:y:2006:n:2:p:255-273
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    Citations

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    Cited by:

    1. Bernhard Michel & François Rycx, 2012. "Does offshoring of materials and business services affect employment? Evidence from a small open economy," Applied Economics, Taylor & Francis Journals, vol. 44(2), pages 229-251, January.
    2. Nathalie Chusseau & Michel Dumont, 2012. "Growing Income Inequalities in Advanced," Working Papers hal-00993359, HAL.
    3. repec:ilo:ilowps:485325 is not listed on IDEAS
    4. Herr, Hansjörg. & Ruoff, Bea., 2014. "Wage dispersion : empirical developments, explanations, and reform options," ILO Working Papers 994853253402676, International Labour Organization.
    5. Nathalie Chusseau & Michel Dumont, 2012. "Growing income inequalities in advanced countries," Working Papers 260, ECINEQ, Society for the Study of Economic Inequality.
    6. Bart Hertveldt & Bernhard Michel, 2013. "Offshoring and the Skill Structure of Labour Demand in Belgium," De Economist, Springer, vol. 161(4), pages 399-420, December.

    More about this item

    Keywords

    foreign outsourcing; labour demand; flexible cost function specification;

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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