Flexible Outsourcing and the Impacts of Labour Taxation in European Welfare States

Erkki Koskela, Panu Poutvaara

    Research output: Working paperResearch

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    In European Welfare States, low-skilled workers are typically unionized, while the wage formation of high-skilled workers is more competitive. To focus on this aspect, we analyze how flexible international outsourcing and labour taxation affect wage formation, employment and welfare in dual domestic labour markets. Higher productivity of outsourcing, lower cost of outsourcing and lower factor price of outsourcing increase wage dispersion between the high-skilled and low-skilled workers. Increasing wage tax progression of low-skilled workers decreases the wage rate and increases the labour demand of low-skilled workers. It decreases the welfare of lowskilled workers and increases both the welfare of high-skilled workers and the profit of firms.
    Original languageEnglish
    Place of PublicationFrederiksberg
    PublisherCentre for Economic and Business Research, Copenhagen Business School
    Number of pages39
    Publication statusPublished - 2008
    SeriesCEBR Discussion Paper


    • Flexible outsourcing
    • Dual labour market
    • Impacts of labour taxation
    • Welfare state

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