Outsourcing Peter To Pay Paul: High Skill Expectations And Low-Skill Wages

Topics:
Outsourced Services
Tags:
Business Operations,
Globalization,
Management,
Michigan State University,
Outsourcing,
Research & Development,
Salary,
Strategy,
Worker
Source:
Michigan State University

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Overview: This paper investigates the impact of globalization on wages earned by low and high-skill workers when openness leads to the outsourcing of high-tech jobs abroad. The authors have shown that low-skill workers may become considerably better off after globalization due to the fact that high-skill workers start accepting low-tech jobs. The switch in the behavior of high-skill workers brings about general equilibrium responses from the firm side of the labor market with the outside options for low-skill workers improving significantly. This feedback works as a magnification mechanism that leads to a discontinuous wage increase that one would not be able to get without careful modeling frictions in the labor market.

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Format: PDF | Size: 206KB | Date: May 2006 | Pages: 26

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