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Outsourcing, labour productivity and wage inequality in the US: a primal approach

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  • Aekapol Chongvilaivan
  • Jung Hur

Abstract

We investigate the linkages among outsourcing activities, labour productivity and wage inequality for skilled and unskilled labour by employing a primal approach that involves estimating a nested constant elasticity of substitution production function, using six-digit North American Industry Classification System US manufacturing industries from 2002 to 2005. First, we find that general outsourcing and international outsourcing have a skill-biased impact on labour productivity. However, the skill-biased impact of general outsourcing on labour productivity is larger than that of international outsourcing. Second, we find that the wage gap between skilled and unskilled labour, which is defined as their marginal productivity gap, can be better explained by general outsourcing than by international outsourcing. These two results imply that the wage inequality of US manufacturing industries during 2002-2005 was mainly due to the skill-biased labour productivity effect of general outsourcing rather than that of international outsourcing.

Suggested Citation

  • Aekapol Chongvilaivan & Jung Hur, 2011. "Outsourcing, labour productivity and wage inequality in the US: a primal approach," Applied Economics, Taylor & Francis Journals, vol. 43(4), pages 487-502.
  • Handle: RePEc:taf:applec:v:43:y:2011:i:4:p:487-502
    DOI: 10.1080/00036840802360302
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    References listed on IDEAS

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    1. Robert C. Feenstra & Gene M. Grossman & Douglas A. Irwin (ed.), 1996. "The Political Economy of Trade Policy: Papers in Honor of Jagdish Bhagwati," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061864, January.
    2. Amiti, Mary & Wei, Shang-Jin, 2006. "Service Offshoring, Productivity and Employment: Evidence from the US," CEPR Discussion Papers 5475, C.E.P.R. Discussion Papers.
    3. Ronald W. Jones, 2000. "Globalization and the Theory of Input Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 026210086x, January.
    4. Mary Amiti & Shang-Jin Wei, 2006. "Service Offshoring and Productivity: Evidence from the United States," NBER Working Papers 11926, National Bureau of Economic Research, Inc.
    5. Fuss, Melvyn & McFadden, Daniel, 1978. "Production Economics: A Dual Approach to Theory and Applications (I): The Theory of Production," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, volume 1, number fuss1978.
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    Cited by:

    1. Jingmei Ma & Yibing Ding & Hongyu Jia, 2016. "The Impacts of Japanese and US Outsourcing on Chinese Firms," Review of Development Economics, Wiley Blackwell, vol. 20(1), pages 126-137, February.

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