Equilibrium Unemployment with Outsourcing under Labour Market Imperfections

Erkki Koskela and Rune Stenbacka

No 1892, CESifo Working Paper Series from CESifo

Abstract: We study the various consequences of and the incentives for outsourcing. We argue that the wage elasticity of labour demand increases as a function of the share of outsourcing, which is 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.

Keywords: outsourcing; labour market imperfections; equilibrium unemployment (search for similar items in EconPapers)
JEL-codes: E23 E24 J51 J64 (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (12)

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Related works:
Journal Article: Equilibrium unemployment with outsourcing under labour market imperfections (2009)
Working Paper: Equilibrium Unemployment with Outsourcing under Labour Market Imperfections (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_1892

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