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Unemployment and welfare consequences of international outsourcing under monopolistic competition

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  • Richard A. Brecher
  • Zhiqi Chen
Abstract
This paper challenges the conventional academic view that international outsourcing is just another form of gainful trade. Contrary to that view, we show that labour‐service outsourcing can reduce the high‐wage country's welfare even when product‐market trade is beneficial, within a model that combines involuntary unemployment and monopolistic competition. Outsourcing's impact on welfare is worsened by a definite loss of jobs and a possible contraction in the range of varieties produced worldwide. While owners of capital benefit from outsourcing under certain conditions, labour's welfare always falls. Conséquences de la sous‐traitance internationale sur le chômage et le bien‐être en régime de concurrence monopolistique. Ce texte remet en question le point de vue conventionnel des universitaires pour qui la sous‐traitance internationale n'est qu'une autre forme de commerce porteur de gains. En opposition à ce point de vue, on montre que la sous‐traitance de services de travail peut réduire le niveau de bien‐être du pays à hauts salaires même quand le commerce dans le marché des produits est bénéfique – dans un modèle qui combine chômage involontaire et concurrence monopolistique. L'impact de la sous‐traitance sur bien‐être est rempiré par une perte d'emplois et une contraction possible de la variété de produits au plan mondial. Alors que les propriétaires de capital bénéficient de la sous‐traitance dans certaines conditions, le bien‐être du travail décline toujours.

Suggested Citation

  • Richard A. Brecher & Zhiqi Chen, 2014. "Unemployment and welfare consequences of international outsourcing under monopolistic competition," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 47(2), pages 540-554, May.
    • Handle: RePEc:wly:canjec:v:47:y:2014:i:2:p:540-554
    DOI: 10.1111/caje.12089
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    References listed on IDEAS

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    1. Richard A. Brecher & Zhiqi Chen, 2014. "Unemployment and welfare consequences of international outsourcing under monopolistic competition," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 47(2), pages 540-554, May.

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    More about this item

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F20 - International Economics - - International Factor Movements and International Business - - - General

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