You're In Then You're Out: The Incidence of Being Outsourced
Early Career Research Award
We analyze the effects of outsourcing labor services, focusing in particular on janitorial, security and food services. Using administrative data from Germany we develop a new method for identifying outsourcing based on workers flows. Using an event-study analysis joint with propensity score matching, preliminary results show that wages of outsourced workers fall by approximately 10-15% relative to similar workers who are not outsourced. We interpret our effects using a model of fair wages, where workers care about their own wage relative to the wage of other workers in their firm. Intra-firm wages are compressed in such a model and create an incentive to outsource parts of the labor force. We show how outsourcing can be used to estimate the structural parameter that determines the extent to which workers care about coworkers' wages.