Does International Outsourcing Really Lower Workers' Income?

27 Pages Posted: 29 Jun 2010

See all articles by Erkki Koskela

Erkki Koskela

University of Helsinki - Department of Political and Economic Studies; CESifo (Center for Economic Studies and Ifo Institute); Bank of Finland - Research Department; IZA Institute of Labor Economics

Jan Koenig

Free University Berlin

Abstract

We analyze the impact of international outsourcing on income, if the domestic labor market is imperfect. We distinguish in our analysis between the case where the parties negotiate over the wage only and where they negotiate over both wage and profit share. We find that in the first case outsourcing will reduce (increase) workers' income, if the labor union’s bargaining power is sufficiently high (low) and outsourcing will increase workers' income in the second case. For the amount of optimal international outsourcing, we find that it is in a pure wage bargaining system positively (negatively) affected by a sufficiently high (low) labor union's bargaining power, while in a wage and profit share bargaining system, a higher union's bargaining power decreases the optimal amount of outsourcing.

Keywords: strategic outsourcing, profit sharing, labor market imperfection

JEL Classification: E23, E24, J23, J33, J82

Suggested Citation

Koskela, Erkki and Koenig, Jan, Does International Outsourcing Really Lower Workers' Income?. IZA Discussion Paper No. 4942. Available at SSRN: https://ssrn.com/abstract=1631077

Erkki Koskela (Contact Author)

University of Helsinki - Department of Political and Economic Studies ( email )

P.O. Box 54
FIN-00014 Helsinki
Finland
+358 9 191 8894 (Phone)
+358 9 191 8877 (Fax)

HOME PAGE: http://www.cesifo.de/servlet/page?_pageid=56&_dad=portal30&_schema=PORTAL30&pa_id=7298

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Bank of Finland - Research Department ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Jan Koenig

Free University Berlin ( email )

Boltzmannstr. 20
Berlin, 14195
Germany

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