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Would Outsourcing Increase or Decrease Wage Inequality? Two Models, Two Answers

Author

Listed:
  • Wenli Cheng
  • Dingsheng Zhang

Abstract

This paper develops two models to study the impact of outsourcing on wage inequality between skilled and unskilled labor in the developed country and the developing country. The first model assumes symmetric production technologies in both countries, and predicts that outsourcing will increase wage inequality in the developed country, but decrease wage inequality in the developing country. The second model assumes asymmetric technologies in the production of the intermediate good and predicts that outsourcing can lead to an increase in wage inequality in both the developed country and the developing country.

Suggested Citation

  • Wenli Cheng & Dingsheng Zhang, 2005. "Would Outsourcing Increase or Decrease Wage Inequality? Two Models, Two Answers," Monash Economics Working Papers 20/05, Monash University, Department of Economics.
    • Handle: RePEc:mos:moswps:2005-20
    as

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    File URL: http://www.buseco.monash.edu.au/eco/research/papers/2005/2005outsourcingandwageinequality.pdf
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    References listed on IDEAS

    as
    1. Wood, Adrian, 1997. "Openness and Wage Inequality in Developing Countries: The Latin American Challenge to East Asian Conventional Wisdom," The World Bank Economic Review, World Bank, vol. 11(1), pages 33-57, January.
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    4. Edward E. Leamer, 1996. "In Search of Stolper-Samuelson Effects on U.S. Wages," NBER Working Papers 5427, National Bureau of Economic Research, Inc.
    5. Beaulieu, Eugene & Benarroch, Michael & Gaisford, James, 2004. "Trade barriers and wage inequality in a North-South model with technology-driven intra-industry trade," Journal of Development Economics, Elsevier, vol. 75(1), pages 113-136, October.
    6. Bound, John & Johnson, George, 1992. "Changes in the Structure of Wages in the 1980's: An Evaluation of Alternative Explanations," American Economic Review, American Economic Association, vol. 82(3), pages 371-392, June.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    wage inequality; endogenous outsourcing;

    JEL classification:

    • F19 - International Economics - - Trade - - - Other

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