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The Reallocation Effects of Domestic Outsourcing

Author

Listed:
  • Mayara Felix

    (Yale University)

  • Michael B. Wong

    (The University of Hong Kong)

Abstract

This paper estimates the wage, employment, and reallocation effects of non-core activity outsourcing using BrazilÕs unexpected 1993 court-ordered outsourcing legalization. We leverage North-South variation in pre-legalization court permissiveness and compare security guards to less affected occupations. We find that older incumbent security guards were adversely impacted through occupational layoffs, loss of firm-level wage premia, and exit from the occupation. At the same time, increased numbers of younger workers entered the formal sector and became employed at contract firms. On net, legalization increased guard employment by 5%, led by a 50% increase in employment for guards aged 18-24, and had no effect on demographically-adjusted guard wages. The observed labor reallocation effects are explained by the fact that contract firms persistently employ demographically different workers than direct employers.

Suggested Citation

  • Mayara Felix & Michael B. Wong, 2024. "The Reallocation Effects of Domestic Outsourcing,"Cowles Foundation Discussion Papers 2416, Cowles Foundation for Research in Economics, Yale University.
    • Handle:RePEc:cwl:cwldpp:2416
    as

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    File URL:https://cowles.yale.edu/sites/default/files/2024-12/d2416.pdf
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    References listed on IDEAS

    as
    1. Bernhardt, Annette & Batt, Rosemary & Houseman, Susan & Appelbaum, Eileen, 2016. "Domestic Outsourcing in the U.S.: A Research Agenda to Assess Trends and Effects on Job Quality,"Institute for Research on Labor and Employment, Working Paper Series qt2fm4m444, Institute of Industrial Relations, UC Berkeley.
    2. Assar Lindbeck & Dennis J. Snower, 1989."The Insider-Outsider Theory of Employment and Unemployment,"MIT Press Books,The MIT Press,edition 1, volume 1, number 026262074x, December.
    3. David H. Autor, 2001."Why Do Temporary Help Firms Provide Free General Skills Training?,"The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(4), pages 1409-1448.
    4. Arindrajit Dube & Ethan Kaplan, 2010."Does Outsourcing Reduce Wages in the Low-Wage Service Occupations? Evidence from Janitors and Guards,"ILR Review, Cornell University, ILR School, vol. 63(2), pages 287-306, January.
    5. Rafael Dix-Carneiro & Rodrigo R. Soares & Gabriel Ulyssea, 2018."Economic Shocks and Crime: Evidence from the Brazilian Trade Liberalization,"American Economic Journal: Applied Economics, American Economic Association, vol. 10(4), pages 158-195, October.
    6. M. J. Andrews & L. Gill & T. Schank & R. Upward, 2008."High wage workers and low wage firms: negative assortative matching or limited mobility bias?,"Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 171(3), pages 673-697, June.
    7. David G. Blanchflower & Alex Bryson, 2004."What Effect Do Unions Have on Wages Now and Would Freeman and Medoff Be Surprised?,"Journal of Labor Research, Transaction Publishers, vol. 25(3), pages 383-414, July.
    8. Susan N. Houseman, 2001."Why Employers Use Flexible Staffing Arrangements: Evidence from an Establishment Survey,"ILR Review, Cornell University, ILR School, vol. 55(1), pages 149-170, October.
    9. Philippe Aghion & Robin Burgess & Stephen J. Redding & Fabrizio Zilibotti, 2008."The Unequal Effects of Liberalization: Evidence from Dismantling the License Raj in India,"American Economic Review, American Economic Association, vol. 98(4), pages 1397-1412, September.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Eren Gürer & Erol Taymaz, 2025. "Skill-biased Wage Effects of Domestic Outsourcing,"ERC Working Papers 2501, ERC - Economic Research Center, Middle East Technical University, revised Mar 2025.

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