Scandinavian Working Papers in Economics

Working Papers,
Copenhagen Business School, Department of Economics

No 19-2005: Specialization, Outsourcing and Wages

Jakob Roland Munch and Jan Rose Skaksen
Additional contact information
Jakob Roland Munch: Department of Economics, Copenhagen Business School, Postal: Department of Economics, Copenhagen Business School, Solbjerg Plads 3 C, 5. sal, DK-2000 Frederiksberg, Denmark
Jan Rose Skaksen: Department of Economics, Copenhagen Business School, Postal: Department of Economics, Copenhagen Business School, Solbjerg Plads 3 C, 5. sal, DK-2000 Frederiksberg, Denmark

Abstract: This paper studies the impact of outsourcing on individual wages. In contrast to the standard approach in the literature, we focus on domestic outsourcing as well as foreign outsourcing. By using a simple theoretical model, we argue that, if outsourcing is associated with specialization gains arising from an increase in the extent of the market for intermediate goods, domestic outsourcing tends to increase wages for both unskilled and skilled labor. We use a panel data set of workers in Danish manufacturing industries to show that domestic and foreign outsurcing affect wages as predicted by the theory.

Keywords: Outsourcing; Comparative advantage; Specialization; Wages

JEL-codes: C23; F16; J31

24 pages, November 13, 2006

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