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Equilibrium unemployment with outsourcing under labour market imperfections

  • Koskela, Erkki
  • Stenbacka, Rune
Registered author(s):

    We study the effects of international outsourcing on equilibrium unemployment in a high-wage economy with labour market imperfections. We demonstrate, consistent with empirical results, that the wage elasticity of labour demand is increasing as a function of outsourcing. Furthermore, we show that a production mode with more outsourcing reduces the negotiated wage in a high-wage country with labour market imperfections if the relative bargaining power of the labour union is sufficiently high. Under such circumstances outsourcing reduces equilibrium unemployment. Finally, we characterize the optimal production mode showing that stronger labour market imperfections induce a production mode with more outsourcing.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0927-5371(08)00124-3
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    Article provided by Elsevier in its journal Labour Economics.

    Volume (Year): 16 (2009)
    Issue (Month): 3 (June)
    Pages: 284-290

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    Handle: RePEc:eee:labeco:v:16:y:2009:i:3:p:284-290
    Contact details of provider: Web page: http://www.elsevier.com/locate/labeco

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