Unemployment and Welfare Consequences of International Outsourcing under Monopolistic Competition

Richard Brecher and Zhiqi Chen

No 11-07, Carleton Economic Papers from Carleton University, Department of Economics

Abstract: This paper challenges the conventional academic view that international outsourcing is just another form of gainful trade. Contrary to this view, we show that labor-service outsourcing can reduce the high-wage country's welfare even when product-market trade is beneficial, within a model that combines involuntary unemployment and monopolistic competition. Outsourcing's impact on welfare is worsened by a definite loss of jobs and a possible contraction in the range of varieties produced worldwide. While owners of capital benefit from outsourcing under certain conditions, labor's welfare always falls.

Keywords: Outsourcing; Offshoring; Unemployment; Welfare; Variety (search for similar items in EconPapers)
JEL-codes: F12 F16 F20 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2011-10-06
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Citations: View citations in EconPapers (1)

Published: Carleton Economic Papers

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Related works:
Journal Article: Unemployment and welfare consequences of international outsourcing under monopolistic competition (2014)
Journal Article: Unemployment and welfare consequences of international outsourcing under monopolistic competition (2014)
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