Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/33879 
Year of Publication: 
2007
Series/Report no.: 
IZA Discussion Papers No. 2628
Publisher: 
Institute for the Study of Labor (IZA), Bonn
Abstract: 
We study both the various consequences and the incentives of outsourcing. We argue that the wage elasticity of labour demand is increasing as a function of the share of outsourcing, which is importantly a result consistent with existing empirical research. Furthermore, we show that a production mode with a higher proportion of outsourcing activity reduces the negotiated wage in the high-wage country with an imperfectly competitive labour market so that outsourcing reduces equilibrium unemployment. Finally, we characterize the optimal production mode and show that stronger labour market imperfections lead to a production mode with a higher share of outsourcing.
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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