Outsourcing of Unionized Firms and the Impact of Labor Market Policy Reforms

Erkki Koskela and Ronnie Schöb ()
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Ronnie Schöb: Free University of Berlin
Authors registered in the RePEc Author Service: Ronnie Schoeb

No 3566, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper shows that outsourcing of parts of workforce in unionized firms leads to wage moderation both in the case of strategic and flexible outsourcing and as long as the share of the outsourced workforce is not too large, this wage-moderation effect on domestic employment outweighs the direct substitution effect so that domestic employment increases in unionized firms as outsourcing costs fall. With respect the impact of labor tax reforms that are well-established in the literature: changes in the wage tax rate, the tax exemption and the unemployment benefit payments affect domestic wage setting in the same way as in the absence of outsourcing. Furthermore, increasing the degree of tax progression by keeping the relative tax burden per worker constant continues to be good for employment. However, except for low outsourcing activities, the impact of these policy measures will become smaller as outsourcing costs fall.

Keywords: labor tax reform; outsourcing; union wage-setting; employment (search for similar items in EconPapers)
JEL-codes: H22 J41 J51 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2008-06
New Economics Papers: this item is included in nep-bec and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published - published in: Review of International Economics, 2010, 18 (4), 682–695

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Related works:
Journal Article: Outsourcing of Unionized Firms and the Impact of Labor Market Policy Reforms (2010)
Working Paper: Outsourcing of Unionized Firms and the Impacts of Labour Market Policy Reforms (2008)
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