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Foreign Outsourcing, Labour Demand and the Choice of Functional Form

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  • Michel Dumont

Abstract

Elasticity of the demand for low-skilled and high-skilled labour in the European Union with respect to foreign outsourcing is estimated, using alternative flexible cost functions. The choice of functional form is apparently not immaterial, as different forms can lead to conflicting conclusions. Tests that can help to discriminate between different forms of functional specification show that a traditional generalized Leontief cost function is often rejected in favour of a minflex Laurent generalized Leontief cost function. Overall, the estimation results show that foreign outsourcing had a significant impact on the demand for low-skilled and high-skilled workers in the sample period. The pattern is however industry- specific and suggests, in line with some recent theoretical models, an ambiguous relationship between outsourcing and labour demand. There is some evidence that high-skilled labour and capital are (relative) complements.

Suggested Citation

  • Michel Dumont, 2006. "Foreign Outsourcing, Labour Demand and the Choice of Functional Form," Journal of Applied Economics, Taylor & Francis Journals, vol. 9(2), pages 255-273, November.
    • Handle: RePEc:taf:recsxx:v:9:y:2006:i:2:p:255-273
    DOI: 10.1080/15140326.2006.12040647
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    Cited by:

    1. Bernhard Michel & François Rycx, 2012. "Does offshoring of materials and business services affect employment? Evidence from a small open economy," Applied Economics, Taylor & Francis Journals, vol. 44(2), pages 229-251, January.
    2. repec:ilo:ilowps:485325 is not listed on IDEAS
    3. Nathalie Chusseau & Michel Dumont, 2012. "Growing Income Inequalities in Advanced," Working Papers hal-00993359, HAL.
    4. Nathalie Chusseau & Michel Dumont, 2013. "Growing Income Inequalities in Advanced Countries," Palgrave Macmillan Books, in: Joël Hellier & Nathalie Chusseau (ed.), Growing Income Inequalities, chapter 1, pages 13-47, Palgrave Macmillan.
    5. Herr, Hansjörg. & Ruoff, Bea., 2014. "Wage dispersion : empirical developments, explanations, and reform options," ILO Working Papers 994853253402676, International Labour Organization.
    6. Bart Hertveldt & Bernhard Michel, 2013. "Offshoring and the Skill Structure of Labour Demand in Belgium," De Economist, Springer, vol. 161(4), pages 399-420, December.
    7. Nathalie Chusseau & Michel Dumont & Joël Hellier, 2008. "Explaining Rising Inequality: Skill‐Biased Technical Change And North–South Trade," Journal of Economic Surveys, Wiley Blackwell, vol. 22(3), pages 409-457, July.

    More about this item

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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