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The Reallocation Effects of Domestic Outsourcing

Author

Listed:
  • Mayara Felix

    (Yale University)

  • Michael B. Wong

    (The University of Hong Kong)

Abstract

This paper estimates the wage, employment, and reallocation effects of non-core activity outsourcing using BrazilÕs unexpected 1993 court-ordered outsourcing legalization. We leverage North-South variation in pre-legalization court permissiveness and compare security guards to less affected occupations. We find that older incumbent security guards were adversely impacted through occupational layoffs, loss of firm-level wage premia, and exit from the occupation. At the same time, increased numbers of younger workers entered the formal sector and became employed at contract firms. On net, legalization increased guard employment by 5%, led by a 50% increase in employment for guards aged 18-24, and had no effect on demographically-adjusted guard wages. The observed labor reallocation effects are explained by the fact that contract firms persistently employ demographically different workers than direct employers.

Suggested Citation

  • Mayara Felix & Michael B. Wong, 2024. "The Reallocation Effects of Domestic Outsourcing," Cowles Foundation Discussion Papers 2416, Cowles Foundation for Research in Economics, Yale University.
    • Handle: RePEc:cwl:cwldpp:2416
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    File URL: https://cowles.yale.edu/sites/default/files/2024-12/d2416.pdf
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    References listed on IDEAS

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    Cited by:

    1. Davide Luparello, 2025. "Do Temporary Workers Face Higher Wage Markdowns? Evidence from India's Automotive Sector," Papers 2507.08222, arXiv.org, revised Oct 2025.
    2. Eren Gürer & Erol Taymaz, 2025. "Skill-biased Wage Effects of Domestic Outsourcing," ERC Working Papers 2501, ERC - Economic Research Center, Middle East Technical University, revised Mar 2025.
    3. Davide Luparello, 2025. "Why Do Contract Workers Earn Less? Evidence from India’s Auto Industry," BAFFI CAREFIN Working Papers 25258, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    4. Fernando Moreno-Contreras & Edwin Gameren, 2025. "The impact of the outsourcing ban in Mexico on labor market outcomes. An analysis using worker level data," Journal for Labour Market Research, Springer;Institute for Employment Research/ Institut für Arbeitsmarkt- und Berufsforschung (IAB), vol. 59(1), pages 1-19, December.

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