Globalization, Outsourcing, and Wage Inequality

Robert Feenstra and Gordon Hanson

No 5424, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: There is considerable debate over whether international trade has contributed to the declining economic fortunes of less skilled workers. One issue that has become lost in the current discussion is how firms respond to import competition and how these responses, in turn, are transmitted to the labor market. In previous work, we have argued that outsourcing, by which we mean the import of intermediate inputs by domestic firms, has contributed to an increase in the relative demand for skilled labor in the United States. If firms respond to import competition from low-wage countries by moving non- skill-intensive activities abroad, then trade will shift employment towards skilled workers within industries. In this paper, we extend our previous work by combining new import data from the revised NBER trade database with disaggregated data on input purchases from the Census of Manufactures. We construct industry-by-industry estimates of outsourcing for the period 1972-1990 and reexamine whether outsourcing has contributed to an increase in relative demand for skilled labor. Our main finding is that outsourcing can account for 31-51% of the increase in the relative demand for skilled labor that occurred in U.S. manufacturing industries during the 1980s, compared to our previous estimate of 15-33%.

JEL-codes: F21 F23 (search for similar items in EconPapers)
Date: 1996-01
Note: ITI
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (722)

Published as American Economic Review, vol.86, no.2, May 1996, pp.240-245.

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