The Impact of International Outsourcing on U.S. Workers’ Wages: Rethinking the Role of Innovation

  •  Kuang-Chung Hsu    
  •  Hui-Chu Chiang    


The purpose of this paper is to extend Feenstra and Hanson’s (1999) analysis of the impact of international outsourcing on wages by considering quality ladders and product cycles theory. Glass and Saggi (2001) found that international outsourcing induces greater incentives for innovation. Hsu (2011) employed a dynamic general equilibrium model to illustrate that outsourcing may affect skilled workers who conduct research and development (R&D) differently from the way it influences skilled workers in manufacturing departments. This paper employs U.S. manufacturing data and finds that international outsourcing increased the wage of skilled workers who conducted R&D in both the 1970s and the 1980s. Outsourcing and expenditure on R&D also increased the relative wages of white-collar workers who are skilled labor but not related to R&D works in the 1980s. The wages of white-collar labor were not increased by international outsourcing in the 1970s.

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