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Holmes, Thomas J., and
Julia Thornton Snider. 2011. "A Theory of Outsourcing and Wage Decline."
,
3(2): 38-59.
Show Article Details
DOI: 10.1257/mic.3.2.38
Abstract:This paper develops a theory of outsourcing in which the circumstances
under which factors of production can grab rents play the leading role. One factor has monopoly power (call this labor) while a second factor does not (call this capital). There are two kinds of production tasks: labor-intensive and capital-intensive. We show that if frictions limiting outsourcing are not too large, in equilibrium labor-intensive tasks are separated from capital-intensive tasks into distinct firms. When a capital-intensive country is opened to free trade, outsourcing increases and labor rents decline. A decrease in outsourcing frictions lowers labor rents. (JEL J31, L22, L24)
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Online Appendix
Authors:
Holmes, Thomas J. (U MN and Federal Reserve Bank of Minneapolis)
Snider, Julia Thornton (UCLA)
JEL Classifications:
J31: Wage Level and Structure; Wage Differentials
L22: Firm Organization and Market Structure
L24: Contracting Out; Joint Ventures; Technology Licensing
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