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Outsourcing, Labor Market Frictions, and Employment

Author

Listed:
  • Mayara Felix

    (Yale University)

  • Michael B. Wong

    (HKU)

Abstract

We estimate the labor market impacts of BrazilÕs 1993 outsourcing legalization using North-South variation in pre-legalization court permissiveness, and comparing security guards to less-affected occupations. We find that outsourcing legalization persistently reallocated jobs from older incumbent guards to younger entrants. Total employment of guards and their entry from informality persistently increased, while average demographic-adjusted wages remained constant. Meanwhile, a wave of occupational layoffs displaced some incumbent guards from high-wage firms. The evidence suggests that the rise of non-core activity outsourcing reduced labor market frictions, facilitated by firm-level economies of scale in human resources and spillovers to non-adopting firms.

Suggested Citation

  • Mayara Felix & Michael B. Wong, 2025. "Outsourcing, Labor Market Frictions, and Employment," Cowles Foundation Discussion Papers 2416R1, Cowles Foundation for Research in Economics, Yale University.
    • Handle: RePEc:cwl:cwldpp:2416r1
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    File URL: https://cowles.yale.edu/sites/default/files/2025-09/d2416R1.pdf
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    References listed on IDEAS

    as
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    Cited by:

    1. Cigdem Ekiz & Eren Gurer & Erol Taymaz, 2026. "Worker- and Firm-Level Effects of an Outsourcing Ban," ERC Working Papers 2604, ERC - Economic Research Center, Middle East Technical University, revised Sep 2026.
    2. Guo, Naijia & Li, Duoxi & Wong, Michael B., 2026. "Domestic outsourcing and employment security," Journal of Development Economics, Elsevier, vol. 182(C).

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