Flexible Outsourcing and the Impacts of Labour Taxation in European Welfare States

Erkki Koskela and Panu Poutvaara

No 3699, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: In European Welfare States, unskilled workers are typically unionized, while the wage formation of skilled workers is more competitive. To focus on this aspect, we analyze how flexible international outsourcing and labour taxation affect wage formation, employment and welfare in dual domestic labour markets. Higher productivity of outsourcing, lower cost of outsourcing and lower factor price of outsourcing increase wage dispersion between the skilled and unskilled workers. Increasing wage tax progression of unskilled workers decreases the wage rate and increases the labour demand of unskilled workers. It decreases the welfare of unskilled workers and increases both the welfare of skilled workers and the profit of firms.

Keywords: flexible outsourcing; dual labour market; impacts of labour taxation; welfare state (search for similar items in EconPapers)
JEL-codes: E24 H22 J21 J31 J51 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2008-09
New Economics Papers: this item is included in nep-bec, nep-eec, nep-lab and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Working Paper: Flexible Outsourcing and the Impacts of Labour Taxation in European Welfare States (2008)
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