Global Sourcing and Relative Wages with A Nontradable Good

Choi, Yong-Yil

doi:2002.17.4.710

The Journal of Economic Integration 2002 April;17(4) :710-723.
DOI: https://doi.org/10.11130/jei.2002.17.4.710

Global Sourcing and Relative Wages with A Nontradable Good

Yong-Yil Choi,

Hansung University

ABSTRACT

In this paper I introduce a new concept of a global sourcing economy and then investigate the effects of global sourcing on relative wages in a general equilibrium model. From the model I derive the theoretical relative wage equations that show different predictions compared with the existing outsourcing literature. Global sourcing has a negative association with the relative wage of skilled labor to less skilled labor within tradable industry, while it is positively associated with the relative wage of skilled labor to less skilled labor within non-tradable industry. This result is contrasted with the notion that outsourcing is positively correlated with the relative demand for skilled labor. Another finding is that the size of the share of mobile labor used to produce non-traded goods plays a key role in deciding the magnitude of global sourcing effect on the wage inequality within non-tradable industry and hence the overall wage inequality. JEL Classification (F16)

Keywords: Global Sourcing | Relative Wages | Economies of Scale | Non-tradable Industry