January 2004

IZA DP No. 982: Winners and Losers: Fragmentation, Trade and Wages Revisited

revised version published as 'Winners and losers: A micro-level analysis of international outsourcing and wages' in: Canadian Journal of Economics / Revue canadienne d'économique, 2008, 41(1), 243-270

Our paper investigates the link between outsourcing and wages utilising a large household panel and combining it with industry level information on industries’ outsourcing activities from input-output tables. By doing so we can arguably overcome the potential endogeneity bias as well as other shortcomings that affect industry level studies. We find that fragmentation has had a marked impact on wages. Distinguishing three skill categories we find evidence that outsourcing reduced the real wage for workers in the lowest skill categories; this result is robust to a number of different specifications and definitions of outsourcing. Furthermore we find some evidence that high-skilled workers experienced increased wages due to fragmentation.