Outsourcing, Unemployment and Welfare Policy
41 Pages Posted: 9 Jun 2008
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Outsourcing, Unemployment and Welfare Policy
Outsourcing, Unemployment and Welfare Policy
Date Written: December 2007
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 Classification: F23, H21, J64, J65, L23
Suggested Citation: Suggested Citation
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