Flexible Outsourcing and the Impacts of Labour Taxation in European Welfare States

No 2440, CESifo Working Paper Series from CESifo

Abstract: In European Welfare States, low-skilled workers are typically unionized, while the wage formation of high-skilled workers is more competitive. To focus on this aspect, we analyze how flexible international outsourcing and labour taxation affect wage formation, employment and welfare in dual domestic labour markets. Higher productivity of outsourcing, lower cost of outsourcing and lower factor price of outsourcing increase wage dispersion between the high-skilled and low-skilled workers. Increasing wage tax progression of lowskilled workers decreases the wage rate and increases the labour demand of low-skilled workers. It decreases the welfare of low-skilled workers and increases both the welfare of high-skilled workers and the profit of firms.

Keywords: flexible outsourcing; dual labour market; impacts of labour taxation; welfare state (search for similar items in EconPapers)
JEL-codes: E24 H22 J21 J31 J51 (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (5)

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Working Paper: Flexible Outsourcing and the Impacts of Labour Taxation in European Welfare States (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_2440

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