This paper attempts to quantify the impact of fragmentation on employment. Factor demand functions for labour and intermediates and mark up price equations derived from a Generalized Leontief cost function at industry level are estimated. Import prices and output prices influence the price of intermediates via a technology matrix from input - output tables. A decrease in import prices (real trade costs) has a twofold impact on labour demand: (i) substitution of domestic employment by partly imported intermediates (= outsourcing or fragmentation) (ii) increased employment due to higher demand caused by an increase in price competitiveness.
fragmentation outsourcing real trade costs Generalized Leontief cost functions