Résumé
This paper analyses a partial equilibrium outsourcing model with Cournot competition in intermediate good production. Final production is located in Western Europe, whereas the intermediate good can be manufactured by a Western (outsourcing) or Eastern European supplier (offshore outsourcing). The paper asks the question how changes in production costs, in particular wages, affect labor input in the two regions in the presence of Cournot competition. The main results are: higher production costs in one region reduce intermediate good production in both regions leading to a substitution effect between high- and low-skilled labor intensive inputs rather than between Eastern and Western low-skilled labor intensive inputs. The sensitivity of outsourcing activities to production cost changes is highest when the interregional cost differential is smallest.
Voir le contenu complet de ce document
Extrait
The Labour Market Effects of Outsourcing Parts and Components: A Simple Model with Cournot Competition
1 Introduction
The outsourcing phenomenon has been a frequently discussed topic in the United States since the late 20th century. The debate on the influence of globalisation versus technical progress on the increasing income differential between high-skilled and low-skilled labour is still going on. Outsourcing, or more precisely offshore outsourcing across borders, has also been intensively discussed in the context of the European Union Eastern enlargement. The question of main interest is how outsourcing activities that attempt to exploit lower production costs in Central and Eastern European countries affect employment in Western European countries (Real wages in the East average around one-fifth of the respective wage levels in the former EU-15). 1 This is the so-called vertical outsourcing in the spirit of Feenstra and HANSON (1996).2This issue is especially important for the debate on unions' bargaining and minimum wages.SINN (2005) describes Germany as a Bazaar Economy importing and exporting large amounts of goods but adding a low production value. Indeed, the value added divided by the output value in the German industry declined from 40.2 % to 34 % between 1970 and 2003 (SINN 2005). For example, the German Porsche Cayenne is actually to a large extent produced in Bratislava. Additionally, the European automotive industry can be characterised by the following developments (MEISSNER and JÜRGENS 2007): There are not only few automobile final producers, but also an agglomeration tendency towards oligopolies of "mega suppliers" exploiting scale effects and being powerful enough to bargain with the big final producers. In particular, in many cases there are only a few suppliers of a certain module that is used in final assembly. Furthermore, price pressure for...Voir le contenu complet de ce document
Liens sponsorisés
