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New Outsourcing, Demand Uncertainty and Labor Usage

Author

Listed:
  • Sasan Bakhtiari

    () (Australian Department of Industry, Innovation and Science
    Australian National University)

  • Robert Breunig

    () (Australian National University)

Abstract

We examine the decisions by small and medium-sized Australian firms to undertake new outsourcing. We hypothesize that new outsourcing may be related to demand uncertainty. We test this hypothesis at the firm level, making use of unique longitudinal data on Australian manufacturing. We find an asymmetric relationship between new outsourcing and demand uncertainty. For the larger firms in our sample, positive demand shocks are related to more new outsourcing. For all firms, negative demand shocks are related to less new outsourcing. New outsourcing appears to be related to demand uncertainty and to the firm’s overall approach to labor utilization.

Suggested Citation

  • Sasan Bakhtiari & Robert Breunig, 2017. "New Outsourcing, Demand Uncertainty and Labor Usage," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 50(1), pages 69-90, February.
  • Handle: RePEc:kap:revind:v:50:y:2017:i:1:d:10.1007_s11151-016-9529-9
    DOI: 10.1007/s11151-016-9529-9
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    References listed on IDEAS

    as
    1. Sourafel Girma & Holger Görg, 2004. "Outsourcing, Foreign Ownership, and Productivity: Evidence from UK Establishment‐level Data," Review of International Economics, Wiley Blackwell, vol. 12(5), pages 817-832, November.
    2. Alvarez, Luis H.R. & Stenbacka, Rune, 2007. "Partial outsourcing: A real options perspective," International Journal of Industrial Organization, Elsevier, vol. 25(1), pages 91-102, February.
    3. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262540932, December.
    4. Morton I. Kamien & Lode Li, 1990. "Subcontracting, Coordination, Flexibility, and Production Smoothing in Aggregate Planning," Management Science, INFORMS, vol. 36(11), pages 1352-1363, November.
    5. Abraham, Katharine G & Taylor, Susan K, 1996. "Firms' Use of Outside Contractors: Theory and Evidence," Journal of Labor Economics, University of Chicago Press, vol. 14(3), pages 394-424, July.
    6. Sasan Bakhtiari, 2015. "Productivity, outsourcing and exit: the case of Australian manufacturing," Small Business Economics, Springer, vol. 44(2), pages 425-447, February.
    7. V. Breunig Robert & Bakhtiari Sasan, 2013. "Outsourcing and Innovation: An Empirical Exploration of the Dynamic Relationship," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 13(1), pages 395-418, April.
    8. Jan A. Van Mieghem, 1999. "Coordinating Investment, Production, and Subcontracting," Management Science, INFORMS, vol. 45(7), pages 954-971, July.
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    More about this item

    Keywords

    Business strategy; Demand uncertainty; Labor adjustment; Outsourcing;

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • L6 - Industrial Organization - - Industry Studies: Manufacturing

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