Equilibrium Unemployment with Outsourcing and Wage Solidarity Under Labour Market Imperfections

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

No 2733, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We evaluate the effects of outsourcing and wage solidarity on wage formation and equilibrium unemployment in a heterogeneous labour market, where wages are determined by a monopoly labour union. We find that outsourcing promotes the wage dispersion between the high-skilled and low-skilled workers. When the labour union adopts a solidaristic wage policy, it will magnify, and not dampen, this tendency. Further, higher outsourcing will increase equilibrium unemployment among the high-skilled workers, whereas it will reduce it among the low-skilled workers. Overall, outsourcing will reduce economy-wide equilibrium unemployment under the reasonable condition that the proportion of high-skilled workers is sufficiently low.

Keywords: outsourcing; wage solidarity; labour market imperfections; equilibrium unemployment (search for similar items in EconPapers)
JEL-codes: E23 E24 J31 J51 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2007-04
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 (11)

Published - published in: European Economic Review, 2010, 54 (3), 376-392

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Related works:
Journal Article: Equilibrium unemployment with outsourcing and wage solidarity under labour market imperfections (2010)
Working Paper: Equilibrium Unemployment with Outsourcing and Wage Solidarity under Labour Market Imperfections (2007)
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