Global Outsourcing and Wage Inequality in Middle-Income Countries

A substantial number of studies have suggested that global outsourcing can induce wage inequality. As Feenstra and Hanson (1996a) argued, global outsourcing is comparable to skill-biased technological change (SBTC) in that global outsourcing is more likely to increase the wage of skilled workers than that of unskilled ones. The present paper examines the effects of outsourcing on wage of skilled and unskilled workers in Korea’s manufacturing sector. In particular, this study determines whether outsourcing to developed countries (DCs) and less developed countries (LDCs) has opposite effects on relative wage in Korean labor market. The results of system and difference GMM estimation based on manufacturing data from 1992 to 2006 indicate that outsourcing to DCs and LDCs have opposite (and significant) effects on relative wage, that is, outsourcing to DCs (LDCs) reduces the wage of skilled (unskilled) workers.