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International Fragmentation: Boon or Bane for Domestic Employment?

In: International Trade and Labor Markets Welfare, Inequality and Unemployment

Author

Listed:
  • Hartmut Egger
  • Udo Kreickemeier

Abstract

In this chapter, we introduce the fairness approach to efficiency wages into a standard model of international fragmentation. This gives us a theoretical framework in which wage inequality and unemployment rates are co-determined and therefore the public concern can be addressed that international fragmentation and outsourcing to low wage countries lead to domestic job-losses. We develop a novel diagrammatic tool to illustrate the main labor market effects of international fragmentation. We also explore how preferences for fair wages and the size of unemployment benefits govern the employment effects of outsourcing and critically assess the role of political intervention that aims to reduce unemployment benefits under internationally fragmented production.

Suggested Citation

  • Hartmut Egger & Udo Kreickemeier, 2017. "International Fragmentation: Boon or Bane for Domestic Employment?," World Scientific Book Chapters, in: International Trade and Labor Markets Welfare, Inequality and Unemployment, chapter 9, pages 237-263, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813224919_0009
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    JEL classification:

    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General

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