Does International Outsourcing Really Lower Workers’ Income?

Abstract

We analyze the impact of international outsourcing on income, if the domestic labor market is imperfect due to the existence of a bargaining round between a firm and a labor union. We distinguish in our analysis the case, where the parties negotiate only over wages and as discussed in the political debate over wage and profit share. We find that in the first case outsourcing will reduce (increase) workers income, if the labor union bargaining power is sufficiently high (low) and outsourcing will increase workers income in the second case. For the amount of optimal international outsourcing, we find that it is in a pure wage bargaining system positive (negative) affected by a sufficiently high (low) labor union's bargaining power, while in a wage and profit share bargaining system higher union's bargaining power decreases the optimal amount of outsourcing.JEL classification: E23, E24, J23, J33, J82

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