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Outsourcing, Unemployment and Welfare Policy

  • Christian Keuschnigg
  • Evelyn Ribi

The paper investigates the consequences of outsourcing of labor intensive activities to low-wage economies. This trend challenges the two basic functions of the welfare state, redistribution and social insurance when private unemployment insurance markets are missing. The main results are: (i) outsourcing raises unemployment and labor income risk ofunskilled workers; (ii) it increases inequality among high- and low-income groups; and (iii) the gains from outsourcing can be made Pareto improving by using a redistributive linear income tax if redistribution is initially not too large. We finally derive the welfare optimal redistribution and unemployment insurance policies.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2452.

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Date of creation: 2008
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Handle: RePEc:ces:ceswps:_2452
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