Equilibrium unemployment with outsourcing and wage solidarity under labour market

We evaluate the effects of outsourcing and wage solidarity on wage formation and equilibrium unemployment in a heterogeneous labour market, where wages are determined by a monopoly labour union. We find that outsourcing promotes the wage dispersion between the high- and low-skilled workers. When the...

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Bibliographic Details
Published in:European economic review 2010-04, Vol.54 (3), p.376
Main Authors: Koskela, Erkki, Stenbacka, Rune
Format: Article
Language:English
Subjects:
Equilibrium
Impact analysis
Labor economics
Labor market
Labor unions
Outsourcing
Skilled workers
Studies
Unemployment
Wages & salaries
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Summary:We evaluate the effects of outsourcing and wage solidarity on wage formation and equilibrium unemployment in a heterogeneous labour market, where wages are determined by a monopoly labour union. We find that outsourcing promotes the wage dispersion between the high- and low-skilled workers. When the labour union adopts a solidaristic wage policy, it will dampen this tendency. Further, higher outsourcing will increase equilibrium unemployment among the high-skilled workers, whereas it will reduce it among the low-skilled workers. Overall, outsourcing will reduce economy-wide equilibrium unemployment under the reasonable condition that the proportion of high-skilled workers is sufficiently low. [PUBLICATION ABSTRACT]
ISSN:0014-2921
1873-572X