Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/26485
Authors: 
Koskela, Erkki
Poutvaara, Panu
Year of Publication: 
2008
Series/Report no.: 
CESifo working paper 2440
Abstract: 
In European Welfare States, low-skilled workers are typically unionized, while the wage formation of high-skilled workers is more competitive. To focus on this aspect, we analyze how flexible international outsourcing and labour taxation affect wage formation, employment and welfare in dual domestic labour markets. Higher productivity of outsourcing, lower cost of outsourcing and lower factor price of outsourcing increase wage dispersion between the high-skilled and low-skilled workers. Increasing wage tax progression of lowskilled workers decreases the wage rate and increases the labour demand of low-skilled workers. It decreases the welfare of low-skilled workers and increases both the welfare of high-skilled workers and the profit of firms.
Subjects: 
Flexible outsourcing
dual labour market
impacts of labour taxation
welfare state
JEL: 
E24
H22
J21
J31
J51
Document Type: 
Working Paper

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