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Outsourcing, Unemployment and Welfare Policy

abstract The paper investigates the consequences of outsourcing of labor intensive activities to low-wage economies. This trend challenges the two basic functions of the welfare state, redistribution and social insurance when private unemployment insurance markets are missing. The main results are: (i) outsourcing raises unemployment and labor income risk of unskilled workers; (ii) it increases inequality between high- and low-income groups; and (iii) the gains from outsourcing can be made Pareto improving by using a redistributive linear income tax if redistribution is initially not too large. We finally derive the welfare optimal redistribution and unemployment insurance policies.
   
type journal paper
   
keywords Outsourcing, unemployment, social insurance, redistribution
   
language English
kind of paper journal article
date of appearance 5-2-2009
journal Journal of International Economics
publisher Elsevier (Amsterdam)
ISSN 0022-1996
volume of journal 78
number of issue 1
page(s) 168-176
review not reviewed
   
citation Keuschnigg, C., & Ribi, E. (2009). Outsourcing, Unemployment and Welfare Policy. Journal of International Economics, 78(1), 168-176.