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Outsourcing of Unionized Firms and the Impacts of Labour Market Policy Reforms

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  • Erkki Koskela
  • Ronnie Schöb

Abstract

This paper shows that outsourcing of parts of the workforce in unionized firms leads to wage moderation and as long as the share of the outsourced workforce is not too large, this wage-moderation effect on domestic employment outweighs the direct substitution effect so that domestic employment increases in unionized firms as outsourcing costs fall. This does not affect the well-established qualitative results of the impact labour tax reforms have: changes in the wage tax rate, the tax exemption and the unemployment benefit payments affect domestic wage setting in the same way as in the absence of outsourcing. Furthermore, increasing the degree of tax progression by keeping the relative tax burden per worker constant continues to be good for employment. However, except for low outsourcing activities, the impact of these policy measures will become smaller as outsourcing costs fall.

Suggested Citation

  • Erkki Koskela & Ronnie Schöb, 2008. "Outsourcing of Unionized Firms and the Impacts of Labour Market Policy Reforms," CESifo Working Paper Series 2360, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_2360
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Elisabetta Magnani, 2012. "Vertical disintegration and training: evidence from a matched employer–employee survey," Journal of Productivity Analysis, Springer, vol. 38(2), pages 199-217, October.
    2. Koskela, Erkki & Poutvaara, Panu, 2009. "Is There Scope for Gains from Revenue-Neutral Labor Tax Reforms with Flexible Outsourcing?," IZA Discussion Papers 3984, Institute for the Study of Labor (IZA).
    3. Beissinger, Thomas & Baudy, Philipp, 2015. "The impact of temporary agency work on trade union wage setting: A theoretical analysis," Hohenheim Discussion Papers in Business, Economics and Social Sciences 01-2015, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    4. Koskela, Erkki & König, Jan, 2011. "The Role of Profit Sharing in Dual Labour Markets with Flexible Outsourcing," IZA Discussion Papers 5798, Institute for the Study of Labor (IZA).
    5. Koskela, Erkki, 2010. "Analysis of Labor Tax Progression under Heterogeneous Domestic Labor Markets and Flexible Outsourcing," IZA Discussion Papers 5313, Institute for the Study of Labor (IZA).
    6. Erkki Koskela & Panu Poutvaara, 2008. "Flexible Outsourcing and the Impacts of Labour Taxation in European Welfare States," CESifo Working Paper Series 2440, CESifo Group Munich.
    7. Stephanie Meinhard & Niklas Potrafke, 2012. "The Globalization–Welfare State Nexus Reconsidered," Review of International Economics, Wiley Blackwell, vol. 20(2), pages 271-287, May.
    8. Koskela, Erkki, 2009. "Impacts of Labor Taxation with Perfectly and Imperfectly Competitive Domestic Labor Markets under Flexible Outsourcing," IZA Discussion Papers 4544, Institute for the Study of Labor (IZA).
    9. Erkki Koskela & Ronnie Schöb, 2010. "Outsourcing of Unionized Firms and the Impact of Labor Market Policy Reforms," Review of International Economics, Wiley Blackwell, vol. 18(4), pages 682-695, September.
    10. Jan König & Erkki Koskela, 2011. "Does International Outsourcing Really Lower Workers’ Income?," Journal of Labor Research, Springer, vol. 32(1), pages 21-38, March.
    11. Silvia Rocha-Akis, 2012. "The Pain and Gain of Offshoring: The Effects of Tax Progression in a Segmented Labour Market," CESifo Working Paper Series 3739, CESifo Group Munich.
    12. Maiti, Dibyendu & Mukherjee, Arijit, 2013. "Trade cost reduction, subcontracting and unionised wage," Labour Economics, Elsevier, vol. 21(C), pages 103-110.
    13. Aronsson, Thomas & Koskela, Erkki, 2009. "Optimal Redistributive Taxation and Provision of Public Input Goods in an Economy with Outsourcing and Unemployment," IZA Discussion Papers 4196, Institute for the Study of Labor (IZA).

    More about this item

    Keywords

    outsourcing; union wage-setting; employment; labour tax reform;

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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