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The Rise of Domestic Outsourcing and the Evolution of the German Wage Structure

Deborah Goldschmidt and Johannes Schmieder
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Deborah Goldschmidt: Boston University

No 15-244, Upjohn Working Papers and Journal Articles from W.E. Upjohn Institute for Employment Research

Abstract: The nature of the relationship between employers and employees has been changing over the last three decades, with firms increasingly relying on contractors, temp agencies, and franchises rather than hiring employees directly. We investigate the impact of this transformation on the wage structure by following jobs that are moved outside of the boundary of lead employers to contracting firms. For this end we develop a new method for identifying outsourcing of food, cleaning, security, and logistics services in administrative data using the universe of social security records in Germany. We document a dramatic growth of domestic outsourcing in Germany since the early 1990s. Event-study analyses show that wages in outsourced jobs fall by approximately 10–15% relative to similar jobs that are not out-sourced. We find evidence that the wage losses associated with outsourcing stem from a loss of firm-specific rents, suggesting that labor cost savings are an important reason why firms choose to contract out these services. Finally, we tie the increase in outsourcing activity to broader changes in the German wage structure, in particular, showing that outsourcing of cleaning, security, and logistics services alone accounts for around 9 percent of the increase in German wage inequality since the 1980s.

Keywords: outsourcing; wages; nonstandard work arrangements; wage inequality; firm rents; IEB data (search for similar items in EconPapers)
JEL-codes: J31 J23 L24 (search for similar items in EconPapers)
Date: 2015-09
New Economics Papers: this item is included in nep-cta
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Related works:
Journal Article: The Rise of Domestic Outsourcing and the Evolution of the German Wage Structure (2017) Downloads
Working Paper: The Rise of Domestic Outsourcing and the Evolution of the German Wage Structure (2015) Downloads
Working Paper: The Rise of Domestic Outsourcing and the Evolution of the German Wage Structure (2015) Downloads
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