International Outsourcing and Labour with Sector-specific Human Capital

Kurt Kratena ()

No 272, WIFO Working Papers from WIFO

Abstract: This paper attempts to quantify the impact of outsourcing on production patterns and the labour market in a two-sector specific-factors model with skilled labour (specific factor) and unskilled labour (mobile factor). Outsourcing can be compared to the case, where trade liberalisation leads to trade in final goods and a change in relative prices. In the latter case a downward pressure on the wage rate for skilled labour in one sector and a wage rise for skilled labour in the other sector indicate significant adjustment costs, whereas with outsourcing an outcome of rising wage rates for skilled labour in both sectors is feasible. The full impact of outsourcing depends on the relative weight of the "factor savings" and the "cost savings" effect. The negative impact on the unskilled wage rate is similar in both cases and depends on the macroeconomic relevance of the respective shocks.

Keywords: Outsourcing; specific factors model; trade liberalisation (search for similar items in EconPapers)
Pages: 27 pages
Date: 2006-04
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Persistent link: https://EconPapers.repec.org/RePEc:wfo:wpaper:y:2006:i:272

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