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International fragmentation: Boon or bane for domestic employment

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  • Egger, Hartmut
  • Kreickemeier, Udo

Abstract

In this chapter, we introduce the fairness approach to efficiency wages into a standard model of international fragmentation. This gives us a theoretical framework in which wage inequality and unemployment rates are co-determined and therefore the public concern can be addressed that international fragmentation and outsourcing to low wage countries lead to domestic job-losses. We develop a novel diagrammatic tool to illustrate the main labor market effects of international fragmentation. We also explore how preferences for fair wages and the size of unemployment benefits govern the employment effects of outsourcing and critically assess the role of political intervention that aims to reduce unemployment benefits under internationally fragmented production.
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Suggested Citation

  • Egger, Hartmut & Kreickemeier, Udo, 2008. "International fragmentation: Boon or bane for domestic employment," European Economic Review, Elsevier, vol. 52(1), pages 116-132, January.
  • Handle: RePEc:eee:eecrev:v:52:y:2008:i:1:p:116-132
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    Cited by:

    1. Felbermayr, Gabriel & Prat, Julien & Schmerer, Hans-Jörg, 2011. "Trade and unemployment: What do the data say?," European Economic Review, Elsevier, vol. 55(6), pages 741-758, August.
    2. Susanna Thede, 2012. "What Can We Learn From Trade-Theoretic Research on Offshoring and Social Insurance?," Economic Papers, The Economic Society of Australia, vol. 31(4), pages 523-524, December.
    3. Hartmut Egger & Udo Kreickemeier, 2017. "International Fragmentation: Boon or Bane for Domestic Employment?," World Scientific Book Chapters,in: International Trade and Labor Markets Welfare, Inequality and Unemployment, chapter 9, pages 237-263 World Scientific Publishing Co. Pte. Ltd..
    4. Lommerud, Kjell Erik & Meland, Frode & Straume, Odd Rune, 2011. "Mergers and capital flight in unionised oligopolies: Is there scope for a "national champion" policy?," International Review of Economics & Finance, Elsevier, vol. 20(2), pages 325-341, April.
    5. Ronald Bachmann & Sebastian Braun, 2011. "The Impact Of International Outsourcing On Labour Market Dynamics In Germany," Scottish Journal of Political Economy, Scottish Economic Society, vol. 58(1), pages 1-28, February.
    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. Richard A. Brecher & Zhiqi Chen, 2014. "Unemployment and welfare consequences of international outsourcing under monopolistic competition," Canadian Journal of Economics, Canadian Economics Association, vol. 47(2), pages 540-554, May.
    8. Keuschnigg, Christian & Ribi, Evelyn, 2009. "Outsourcing, unemployment and welfare policy," Journal of International Economics, Elsevier, vol. 78(1), pages 168-176, June.
    9. repec:bla:pacecr:v:21:y:2016:i:5:p:581-602 is not listed on IDEAS
    10. Wilhelm Kohler & Jens Wrona, 2010. "Offshoring Tasks, yet Creating Jobs?," CESifo Working Paper Series 3019, CESifo Group Munich.
    11. Horgos Daniel, 2012. "International Outsourcing and Wage Rigidity," Global Economy Journal, De Gruyter, vol. 12(2), pages 1-28, June.
    12. Alessia Lo Turco & Aleksandra Parteka, 2009. "The EU enlargement and domestic employment," Economics Bulletin, AccessEcon, vol. 29(3), pages 2202-2217.
    13. Tobias Brändle & Andreas Koch, 2015. "Offshoreability and wages. Evidence from German task data," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 42(2), pages 189-216, June.
    14. Sebastian Benz, 2012. "Trading Tasks: A Dynamic Theory of Offshoring," ifo Working Paper Series 150, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    15. Ken-ichi Hashimoto, 2015. "Tariffs, Offshoring and Unemployment in A Two-Country Model," The Japanese Economic Review, Japanese Economic Association, vol. 66(3), pages 371-392, September.
    16. Kieran P. Donaghy, 2012. "The Co-evolution of Logistics, Globalization and Spatial Price Competition: Implications for a Unified Theory of Trade and Location," Chapters,in: Globalization Trends and Regional Development, chapter 3 Edward Elgar Publishing.
    17. repec:wsi:wschap:9789813224919_0010 is not listed on IDEAS
    18. Alessia Lo Turco & Aleksandra Parteka, 2011. "The demand for skills and labour costs in partner countries," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 19(3), pages 611-637, July.
    19. Aiginger, Karl, 2017. "Europa zwischen Globalisierung und Renationalisierung," Department of Economics Working Paper Series 5682, WU Vienna University of Economics and Business.
    20. Horgos, Daniel, 2009. "Labor market effects of international outsourcing: How measurement matters," International Review of Economics & Finance, Elsevier, vol. 18(4), pages 611-623, October.
    21. repec:spr:sjecst:v:154:y:2018:i:1:d:10.1186_s41937-017-0006-7 is not listed on IDEAS
    22. Koskela, Erkki & Stenbacka, Rune, 2010. "Equilibrium unemployment with outsourcing and wage solidarity under labour market imperfections," European Economic Review, Elsevier, vol. 54(3), pages 376-392, April.
    23. Hartmut Egger & Udo Kreickemeier, 2017. "Firm Heterogeneity and the Labor Market Effects of Trade Liberalization," World Scientific Book Chapters,in: International Trade and Labor Markets Welfare, Inequality and Unemployment, chapter 10, pages 265-306 World Scientific Publishing Co. Pte. Ltd..
    24. 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).
    25. Wilhelm Kohler, 2007. "The Bazaar Effect, Unbundling of Comparative Advantage, and Migration," CESifo Working Paper Series 1932, CESifo Group Munich.

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    JEL classification:

    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General

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