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Equilibrium unemployment with outsourcing and wage solidarity under labour market imperfections

  • Koskela, Erkki
  • Stenbacka, Rune
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    We evaluate the effects of outsourcing and wage solidarity on wage formation and equilibrium unemployment in a heterogeneous labour market, where wages are determined by a monopoly labour union. We find that outsourcing promotes the wage dispersion between the high- and low-skilled workers. When the labour union adopts a solidaristic wage policy, it will dampen this tendency. Further, higher outsourcing will increase equilibrium unemployment among the high-skilled workers, whereas it will reduce it among the low-skilled workers. Overall, outsourcing will reduce economy-wide equilibrium unemployment under the reasonable condition that the proportion of high-skilled workers is sufficiently low.

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    File URL: http://www.sciencedirect.com/science/article/B6V64-4X908VT-1/2/31ff5beb9bd53d1437db2b77cdd345b2
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    Article provided by Elsevier in its journal European Economic Review.

    Volume (Year): 54 (2010)
    Issue (Month): 3 (April)
    Pages: 376-392

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    Handle: RePEc:eee:eecrev:v:54:y:2010:i:3:p:376-392
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