Why do they just do it? A theory of outsourcing and working conditions

Donado, Alejandro (2020): Why do they just do it? A theory of outsourcing and working conditions. Forthcoming in: Open Economies Review

Abstract

Nike and other companies have long been criticized for outsourcing their production to contract factories with dismal working conditions. Despite the overwhelming amount of interest, there exists no theory for studying this topic. The current paper fills this gap. In the model, the most productive firms in the North make high profits and outsource their manufacturing production to contract factories in the South. Factories pay wages that can compensate for poor working conditions, but these wages might not meet workers' basic needs. The paper studies an extension under which factory workers are not appropriately compensated for inferior working conditions.

• Item Type: MPRA Paper
• Language: English
• Keywords: Outsourcing, working conditions, compensating wage differentials, labor standards, subcontracting, Nike, sweatshop
• Subjects: F - International Economics > F1 - Trade > F12 - Models of Trade with Imperfect Competition and Scale Economies ; Fragmentation; F - International Economics > F1 - Trade > F16 - Trade and Labor Market Interactions; F - International Economics > F2 - International Factor Movements and International Business > F23 - Multinational Firms ; International Business; F - International Economics > F6 - Economic Impacts of Globalization > F66 - Labor; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure ; Wage Differentials; J - Labor and Demographic Economics > J8 - Labor Standards: National and International > J81 - Working Conditions; J - Labor and Demographic Economics > J8 - Labor Standards: National and International > J83 - Workers' Rights

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