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Does International Outsourcing Really Lower Workers' Income?

Author

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  • Koskela, Erkki

    () (University of Helsinki)

  • König, Jan

    () (Free University of Berlin)

Abstract

We analyze the impact of international outsourcing on income, if the domestic labor market is imperfect. We distinguish in our analysis between the case where the parties negotiate over the wage only and where they negotiate over both wage and profit share. We find that in the first case outsourcing will reduce (increase) workers' income, if the labor union’s bargaining power is sufficiently high (low) and outsourcing will increase workers' income in the second case. For the amount of optimal international outsourcing, we find that it is in a pure wage bargaining system positively (negatively) affected by a sufficiently high (low) labor union's bargaining power, while in a wage and profit share bargaining system, a higher union's bargaining power decreases the optimal amount of outsourcing.

Suggested Citation

  • Koskela, Erkki & König, Jan, 2010. "Does International Outsourcing Really Lower Workers' Income?," IZA Discussion Papers 4942, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp4942
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    Keywords

    strategic outsourcing; labor market imperfection; profit sharing;

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J82 - Labor and Demographic Economics - - Labor Standards - - - Labor Force Composition

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