Outsourcing, Unemployment and Welfare Policy

32 Pages Posted: 12 Nov 2008

See all articles by Christian Keuschnigg

Christian Keuschnigg

University of St. Gallen – Department of Economics (FGN-HSG); CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Evelyn Ribi

University of St. Gallen

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Date Written: November 2008

Abstract

The paper investigates the consequences of outsourcing of labor intensive activities to lowwage economies. This trend challenges the two basic functions of the welfare state, redistribution and social insurance when private unemployment insurance markets are missing. The main results are: (i) outsourcing raises unemployment and labor income risk of unskilled workers; (ii) it increases inequality among high- and low-income groups; and (iii) the gains from outsourcing can be made Pareto improving by using a redistributive linear income tax if redistribution is initially not too large. We finally derive the welfare optimal redistribution and unemployment insurance policies.

Keywords: outsourcing, unemployment, social insurance, redistribution

JEL Classification: F23, H21, J64, J65, L23

Suggested Citation

Keuschnigg, Christian and Ribi, Evelyn, Outsourcing, Unemployment and Welfare Policy (November 2008). CESifo Working Paper Series No. 2452. Available at SSRN: https://ssrn.com/abstract=1299543

Christian Keuschnigg (Contact Author)

University of St. Gallen – Department of Economics (FGN-HSG) ( email )

Varnbuelstrasse 19
St. Gallen, 9000
Switzerland

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Evelyn Ribi

University of St. Gallen ( email )

Varnbuelstr. 14
Saint Gallen, St. Gallen CH-9000
Switzerland

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