Unemployment and Welfare Consequences of International Outsourcing under Monopolistic Competition
This paper challenges the conventional academic view that international outsourcing is just another form of gainful trade. Contrary to this view, we show that labor-service outsourcing can reduce the high-wage country's welfare even when product-market trade is beneficial, within a model that combines involuntary unemployment and monopolistic competition. Outsourcing's impact on welfare is worsened by a definite loss of jobs and a possible contraction in the range of varieties produced worldwide. While owners of capital benefit from outsourcing under certain conditions, labor's welfare always falls.
|Date of creation:||06 Oct 2011|
|Publication status:||Published: Carleton Economic Papers|
|Contact details of provider:|| Postal: C870 Loeb Building, 1125 Colonel By Drive, Ottawa Ontario, K1S 5B6 Canada|
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- Jagdish Bhagwati & Arvind Panagariya, 2004. "The Muddles over Outsourcing," Journal of Economic Perspectives, American Economic Association, vol. 18(4), pages 93-114, Fall.
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