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Technology and outsourcing: An explanation to the rising wage gap

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  • Roy Chowdhury, Sahana

Abstract

The recent phenomenon of widening skilled-unskilled wage gap in both North and South has been either explained by a technological change or by increasing trade or globalization. The paper provides a new explanation and emphasizes that it is neither technology nor trade alone but both that have contributed to the widening wage inequality. It argues, using a two-country occupational choice model, that any technological improvement in North results in a rise in the skilled-unskilled wage gap in North via an increase in the productivity of skilled labor followed by a rise in the same in South via trade or the outsourcing activities of the northern firms. The extent of outsourcing or the number of northern firms that outsource jobs to South is endogenously determined in the model. The paper also analyzes some major economic impacts of such a technological upgradation in North on the southern economy.

Suggested Citation

  • Roy Chowdhury, Sahana, 2010. "Technology and outsourcing: An explanation to the rising wage gap," Economic Modelling, Elsevier, vol. 27(1), pages 380-387, January.
  • Handle: RePEc:eee:ecmode:v:27:y:2010:i:1:p:380-387
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Zhang, Jingjing, 2012. "Inflow of labour, producer services and wage inequality," Economics Letters, Elsevier, vol. 117(3), pages 600-603.
    2. Anwar, Sajid, 2013. "Outsourcing and the skilled–unskilled wage gap," Economics Letters, Elsevier, vol. 118(2), pages 347-350.
    3. Zhang, Jingjing, 2015. "International factor mobility, elasticity of substitution in production and the skilled–unskilled wage gap," International Review of Economics & Finance, Elsevier, vol. 35(C), pages 122-129.
    4. Zhang, Jingjing, 2013. "Factor mobility and skilled–unskilled wage inequality in the presence of internationally traded product varieties," Economic Modelling, Elsevier, vol. 30(C), pages 579-585.
    5. Anwar, Sajid & Sun, Sizhong & Valadkhani, Abbas, 2013. "International outsourcing of skill intensive tasks and wage inequality," Economic Modelling, Elsevier, vol. 31(C), pages 590-597.

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