Two-Way Outsourcing, International Migration, and Wage Inequality


This paper develops a general equilibrium model with a vertical production structure to examine the relationship between offshore outsourcing and international migration,especially emphasizing their effects on the wages of skilled and unskilled workers. Two-way outsourcing (simultaneous insourcing and outsourcing) in skilled-labor intensive services arises due to product differentiation and scale economies, and outsourcing in unskilled-labor intensive processing occurs because of factor endowment differences. The tractability of the model allows us to rank outsourcing and migration, according to the wages of both types of workers. Finally, we also analyze under what conditions outsourcing and international migration are complements or substitutes.


JEL Classification:F11, F12, F16, F22

Faculty of Economics, Sophia University

Laixun ZHAO
Research Institute for Economics and Business Administration
Kobe University
Rokkodai-cho, Nada-ku, Kobe
657-8501 Japan
Phone: (81) 78 803 7036
Fax: (81) 78 803 7059