Would Outsourcing Increase or Decrease Wage Inequality? Two Models, Two Answers
This paper develops two models to study the impact of outsourcing on wage inequality between skilled and unskilled labor in the developed country and the developing country. The first model assumes symmetric production technologies in both countries, and predicts that outsourcing will increase wage inequality in the developed country, but decrease wage inequality in the developing country. The second model assumes asymmetric technologies in the production of the intermediate good and predicts that outsourcing can lead to an increase in wage inequality in both the developed country and the developing country.
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