IFS/STICERD/UCL Development Work in Progress Seminar
Domestic outsourcing is on the rise. What happens when the practice is banned
Manuel Alejandro Estefan Davila (University of Notre Dame, IFS), joint with Roberto Gerard, Joe Kaboski, Illenin Kondo, and Wei Qian
Thursday 26 September 2024 14:00 - 15:00
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About this event
A weakening of labor protection policies is often invoked as one cause of observed monopsony power and the decline in labor’s share of income, but we have little evidence on the causal impact of labor policies on wage markdowns. Using confidential Mexican economic census data from 1994 to 2019, we document a rising trend over this period in on-site outsourcing, particularly among large firms, and a negative association between outsourcing and labor compensation, including profit sharing, employment benefits, and mandated social security. We leverage higher-frequency data from a manufacturing panel survey, matched employer–employee data, and a ban on domestic outsourcing in 2021 to show that the ban drastically reduced outsourcing, increased wages at the bottom of the distribution, increased labor’s share, and reduced measured markdowns among high-markdown firms without lowering output or productivity or affecting employment or its composition. However, we also find that the reform reduced capital investment and increased the probability of market exit among smaller firms.
This seminar series is jointly organized by the IFS, STICERD, and UCL.
IFS/STICERD/UCL Development Economics Work In Progress seminars are held on Thursdays in term time at 14:00-15:00, at the IFS, unless specified otherwise.
Seminar organisers: Oriana Bandiera (STICERD, LSE), Imran Rasul (UCL), Britta Augsburg (IFS) and Jonathan Weigel (LSE).
For further information please contact Britta Augsburg: britta_a@ifs.org.uk.
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