IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

An Evaluation of the Employment Effects of Barriers to Outsourcing

  • Bandyopadhyay, Subhayu


    (Federal Reserve Bank of St. Louis)

  • Marjit, Sugata


    (Centre for Studies in Social Sciences, Calcutta)

  • Yang, Lei


    (Hong Kong Polytechnic University)

Barriers to outsourcing that are being currently implemented in the US effectively tax its companies who "export" jobs through outsourcing. The objective is to raise domestic employment. Given that many of the important international markets where the US has a comparative advantage feature non-atomistic firms, we evaluate the implications of such policies in an oligopolistic context. We find that while an outsourcing tax favors domestic workers by causing firms to switch to a greater use of domestic sources (the substitution effect), the loss in international competitiveness has a negative volume effect (the output effect), which pulls in the other direction. First, we identify the conditions that determine the relative strengths of these effects, which inform us about the conditions under which such a tax achieves its stated objective. Next, we consider the international policy interdependence that arises when a competing nation also engages in such a policy. An interesting finding is that even if a unilateral tax by the US raises its employment, this may turn around in a Nash policy equilibrium, where the competing nation abandons free trade and also engages in unilateral outsourcing policies. Finally, we extend the basic model to look at the effects of credit shortage and product differentiation. Interesting findings are that both a credit crisis (as in recent years) and increased product differentiation tend to worsen the employment effects of the outsourcing tax. The qualitative nature of our findings is similar between Cournot and Bertrand competition, suggesting that our results are robust to the mode of strategic behavior.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5426.

in new window

Length: 29 pages
Date of creation: Jan 2011
Date of revision:
Publication status: published in: Canadian Journal of Economics, 47(4), 1372-1386, November 2014, under the revised title “International Oligopoly, Barriers to Outsourcing and Domestic Employment."
Handle: RePEc:iza:izadps:dp5426
Contact details of provider: Postal: IZA, P.O. Box 7240, D-53072 Bonn, Germany
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page:

Order Information: Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Roy Chowdhury, Prabal, 2009. "Bertrand competition with non-rigid capacity constraints," Economics Letters, Elsevier, vol. 103(1), pages 55-58, April.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp5426. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.