Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/35043 
Year of Publication: 
2008
Series/Report no.: 
IZA Discussion Papers No. 3522
Publisher: 
Institute for the Study of Labor (IZA), Bonn
Abstract: 
We evaluate the effects of international outsourcing and labor taxation on wage formation and equilibrium unemployment in dual labor markets. Outsourcing promotes wage dispersion between the high-skilled and low-skilled workers. Higher domestic low-skilled wage tax, higher payroll tax and lower wage tax exemption increase optimal outsourcing. Outsourcing will reduce equilibrium unemployment of low-skilled workers both in the presence and absence of labor taxation. In the presence of outsourcing, wage tax, tax exemption and payroll tax have an ambiguous effect on equilibrium unemployment. Increasing the degree of tax progression decreases the wage rate and increases the demand of low-skilled workers.
Subjects: 
Outsourcing
dual labor markets
labor taxation
equilibrium unemployment
JEL: 
E24
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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