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International Outsourcing, Unemployment and Welfare: A Re-Examination

Author

Listed:
  • Choi, Jai-Young

    (Lamar University)

  • Yu, Eden S. H.

    (Chu Hai College of Higher Education)

Abstract

This paper explores the ramifications of international outsourcing on unemployment, income distribution and welfare, which is an important but yet unresolved issue. Using the well-known Harris-Todaro (1970) model of sector-specific unemployment, it shows that the effects of outsourcing on employment, income-distribution and welfare depend on the sector in which the outsourcing occurs, whereby sectoral factor intensities, unemployment-outsourcing response and the dynamic stability condition play crucial roles. In particular, outsourcing in the manufacturing (primary) sector widens (narrows) income inequality by increasing (decreasing) the sectoral wage gap and raising (not affecting) the rental income of the capital owners in the economy. Moreover, outsourcing in the manufacturing (primary) sector can be welfare-decreasing (is always welfare-increasing) due to its negative (positive) employment effect mitigating (reinforcing) the primary gains from the outsourcing.

Suggested Citation

  • Choi, Jai-Young & Yu, Eden S. H., 2019. "International Outsourcing, Unemployment and Welfare: A Re-Examination," East Asian Economic Review, Korea Institute for International Economic Policy, vol. 23(3), pages 261-284, September.
    • Handle: RePEc:ris:eaerev:0363
    DOI: 10.11644/KIEP.EAER.2019.23.3.363
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    More about this item

    Keywords

    Outsourcing; Factor-Augmenting Effect; Unemployment; Dynamic Stability; Immiserizing Growth;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F29 - International Economics - - International Factor Movements and International Business - - - Other
    • F60 - International Economics - - Economic Impacts of Globalization - - - General

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