Does Outsourcing Provision Lead to Wage Inequality? New Evidence from Thailand's Establishment‐Level Data

13 Pages Posted: 19 Apr 2012

See all articles by Aekapol Chongvilaivan

Aekapol Chongvilaivan

Asian Development Bank

Shandre M. Thangavelu

National University of Singapore (NUS) - Department of Economics

Date Written: May 2012

Abstract

The impacts of outsourcing provision - the arrangements whereby a firm carries out production stages for other firms - are examined on wage differentials between skilled and unskilled workers using Thailand's establishment‐level data. The estimates based on a translog production function indicate that outsourcing provision augments productivity of both skilled and unskilled labor and contributes positively to wage inequality. The model predicts that a 1% increase in outsourcing provision leads to a rise in wage differentials by nearly 2.5%. The robustness check further reveals that the impacts of services provision on wage inequality are more pronounced than those of materials provision. These results highlight the importance of outsourcing provision as a new explanation of the widening skilled–unskilled wage gap in developing countries which typically emerge as a hub of outsourcing provision.

Suggested Citation

Chongvilaivan, Aekapol and Thangavelu, Shandre Mugan, Does Outsourcing Provision Lead to Wage Inequality? New Evidence from Thailand's Establishment‐Level Data (May 2012). Review of International Economics, Vol. 20, Issue 2, pp. 364-376, 2012. Available at SSRN: https://ssrn.com/abstract=2042441 or http://dx.doi.org/10.1111/j.1467-9396.2012.01027.x

Aekapol Chongvilaivan

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

HOME PAGE: http://www.adb.org/

Shandre Mugan Thangavelu

National University of Singapore (NUS) - Department of Economics ( email )

1 Arts Link, AS2 #06-02
Singapore 117570, Singapore 119077
Singapore

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