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Outsourcing Policy and Worker Outcomes: Causal Evidence from a Mexican Ban

Author

Listed:
  • Alejandro Estefan
  • Roberto Gerhard
  • Joseph P. Kaboski
  • Illenin O. Kondo
  • Wei Qian

Abstract

A weakening of labor protection policies is often invoked as one cause of observed monopsony power and the decline in labor's share of income, but little evidence exists on the causal impact of labor policies on wage markdowns. Using confidential Mexican economic census data from 1994 to 2019, we document a rising trend over this period in on-site outsourcing. Then, leveraging data from a manufacturing panel survey from 2013 to 2023 and a natural experiment featuring a ban on domestic outsourcing in 2021, we show that the ban drastically reduced outsourcing, increased wages, and reduced measured markdowns without lowering output or employment. Consistent with the presence of monopsony power, we observe large markdowns for the largest firms, with the decline in markdowns in response to the ban concentrated among high-markdown firms. However, we also find that the reform reduced capital investment and increased the probability of market exit.

Suggested Citation

  • Alejandro Estefan & Roberto Gerhard & Joseph P. Kaboski & Illenin O. Kondo & Wei Qian, 2024. "Outsourcing Policy and Worker Outcomes: Causal Evidence from a Mexican Ban," NBER Working Papers 32024, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32024
    Note: DEV EFG LS
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    Cited by:

    1. Cortes, Guido Matias & Dabed, Diego & Oliveira, Ana & Salomons, Anna, 2024. "Fissured firms and worker outcomes," CLEF Working Paper Series 80, Canadian Labour Economics Forum (CLEF), University of Waterloo.
    2. Davide Luparello, 2025. "Do Temporary Workers Face Higher Wage Markdowns? Evidence from India's Automotive Sector," Papers 2507.08222, arXiv.org, revised Oct 2025.
    3. José L. Casco & León Fernández Bujanda & Laura Kurczyn, 2024. "Outsourcing, Employment and Wages: Evidence from a Policy Reform in Mexico," Working Papers 2024-20, Banco de México.
    4. Agustina Colonna & Lorenzo Aldeco Leo, 2025. "Outsourcing, Labor Regulations and Profit-Sharing: Evidence from Mexico," Working Papers 2025-15, Banco de México.
    5. 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.
    6. Amodio, Francesco & Brancati, Emanuele & De Roux, Nicolas & Di Maio, Michele, 2024. "The Labor Market Power of Exporting Firms: Evidence from Latin America," IDB Publications (Working Papers) 13451, Inter-American Development Bank.
    7. Francesco Amodio & Emanuele Brancati & Peter Brummond & Nicolas de Roux & Michele Di Maio, 2024. "Global Labor Market Power," RFBerlin Discussion Paper Series 2404, ROCKWOOL Foundation Berlin (RFBerlin).
    8. Francesco Amodio & Emanuele Brancati & Nicolás de Roux & Michele Di Maio, 2025. "Labor Market Institutions and Wage-Setting Power: Evidence from Latin America and the Caribbean," Documentos CEDE 2025-26, Universidad de los Andes, Facultad de Economía, CEDE.
    9. Jiménez, Bruno & Rendon, Silvio, 2025. "Labor market effects of bounds on domestic outsourcing," Journal of Development Economics, Elsevier, vol. 173(C).

    More about this item

    JEL classification:

    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • J8 - Labor and Demographic Economics - - Labor Standards
    • J81 - Labor and Demographic Economics - - Labor Standards - - - Working Conditions
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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