Working Paper: CEPR ID: DP6605
Authors: Christian Keuschnigg; Evelyn Ribi
Abstract: Outsourcing of labour intensive activities challenges the welfare state and undermines the protection of low-skilled workers. The stylized facts are that profits are concentrated among the high-skilled, involuntary unemployment is mostly among the low-skilled, and private unemployment insurance is missing. This paper analyzes the effectiveness of redistribution and social insurance and characterizes the optimal welfare policy when heterogeneous firms can outsource labour intensive components to low-wage economies.
Keywords: Outsourcing; Redistribution; Social Insurance; Unemployment
JEL Codes: F23; H21; J64; J65; L23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Lower transport costs (L91) | Increased outsourcing (L24) |
| Increased outsourcing (L24) | Depressed wages for lowskilled workers (F66) |
| Increased outsourcing (L24) | Raised unemployment rates for lowskilled workers (F66) |
| Social insurance (unemployment benefits) (J65) | Raised wages for lowskilled workers (J38) |
| Social insurance (unemployment benefits) (J65) | Increased outsourcing and unemployment (F66) |
| Redistribution policies (linear income tax) (H23) | Reduced gross wages (J31) |
| Redistribution policies (linear income tax) (H23) | Increased net wages for lowskilled workers (J31) |
| Redistribution policies (linear income tax) (H23) | Favoring job creation (J68) |