Outsourcing: Who Gains In The Short Run?

Abstract

Over the last several years there has been an intense debate over the issue of outsourcing. The two main topic questions of dispute are: What are the effects of outsourcing on employment and wages? What can be done to alleviate the cost of outsourcing on the labor side? In this paper we try to answer these two main questions. In particular, the scope of this paper is to understand the degree of substitutability between the domestic and the foreign labor due to outsourcing and its implications for both employment and reemployment. For this purpose, we will provide a rigorous definition of outsourcing and then illustrate a theoretical framework to analyze its effects.