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Outsourcing, labor market pooling, and labor contracts

  • PICARD, Pierre M.
  • WILDASIN, David E.

This paper considers the interaction between input sharing and labor market pooling in urban areas. In particular, it examines the impact of the size of a city and business risks on the organizational structures of firms located in urban agglomerations, and it also discusses the impact of organizational structure on incentives to insure workers against income risks. It is shown that manufacturing firms suffer from a coordination game in their decision to outsource production. The existence of idiosyncratic risks causes manufacturers to refrain from outsourcing. The incentives to offer wage and employment protection to workers are more pronounced when manufacturers outsource the production of their inputs to a local market, which mitigates the impact of labor market pooling.

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File URL: http://dx.doi.org/10.1016/j.jue.2011.01.002
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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers RP with number -2354.

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Handle: RePEc:cor:louvrp:-2354
Note: In : Journal of Urban Economics, 70(1), 47-60, 2011
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