This paper challenges the conventional academic view that international outsourcing is just another form of gainful trade. Contrary to that view, we show that labour-service outsourcing can reduce the high-wage country's welfare even when product-market trade is beneficial, within a model that combines involuntary unemployment and monopolistic competition. Outsourcing's impact on welfare is worsened by a definite loss of jobs and a possible contraction in the range of varieties produced worldwide. While owners of capital benefit from outsourcing under certain conditions, labour's welfare always falls.

doi.org/10.1111/caje.12089
Canadian Journal of Economics
Department of Economics

Brecher, R.A, & Chen, Z. (2014). Unemployment and welfare consequences of international outsourcing under monopolistic competition. Canadian Journal of Economics, 47(2), 540–554. doi:10.1111/caje.12089