Outsourcing policy and worker outcomes: causal evidence from a Mexican ban
This study documents a rising trend in on-site outsourcing, using confidential economic census data from 1994 to 2019.
Abstract
A weakening of labour protection policies is often invoked as one cause of observed monopsony power and the decline in labour’s share of income, but little evidence exists on the causal impact of labour policies on wage markdowns. Using confidential Mexican economic census data from 1994 to 2019, this study documents a rising trend over this period in on-site outsourcing. Then, leveraging data from a manufacturing panel survey from 2013 to 2023 and a natural experiment featuring a ban on domestic outsourcing in 2021, its show that the ban drastically reduced outsourcing, increased wages, and reduced measured markdowns without lowering output or employment. Consistent with the presence of monopsony power, it observes large markdowns for the largest firms, with the decline in markdowns in response to the ban concentrated among high-markdown firms. It also finds that the reform reduced capital investment and increased the probability of market exit.
This is an output of the Structural Transformation and Economic Growth (STEG) programme.
Citation
Estefan A, Gerhard R, Kaboski J, Kondo I and Qian W. ‘Outsourcing policy and worker outcomes: causal evidence from a Mexican ban’ Structural Transformation and Economic Growth (STEG) Working Paper Series, WP088, 2024
Links
Outsourcing policy and worker outcomes: causal evidence from a Mexican ban