Equilibrium Unemployment with Outsourcing under Labour Market Imperfections

Erkki Koskela and Rune Stenbacka ()
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Rune Stenbacka: Swedish School of Economics

No 2628, IZA Discussion Papers from Institute of Labor Economics (IZA)

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.

Keywords: labour market imperfections; equilibrium unemployment; outsourcing (search for similar items in EconPapers)
JEL-codes: E23 E24 J51 J64 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2007-02
New Economics Papers: this item is included in nep-bec, nep-lab and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Published - published in: Labour Economics, 2009, 16 (3), 284-290

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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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