GEP Research Paper 03/17
Fragmentation, Productivity and Relative Wages in the UK: A Mandated Wage Approach
Alexander Hijzen
A revised version of this paper is forthcoming in the Review of International Economics under the title "International Outsourcing, Technological Change and Wage Inequality"
Abstract
Feenstra and Hanson (1999) propose a two-step method to analyse the role of outsourcing and skill-biased technological change (SBTC) in the rise of wage inequality. This paper applies their methodology to UK manufacturing using data for the 1990s and extends it in order to obtain additional insight into the relative importance of the sector bias and the factor bias of outsourcing and SBTC. The results indicate that SBTC is the predominant force behind the increase in wage inequality accounting for 10% of the total increase in the UK in the 1990s. Outsourcing also significantly contributed to the rise in the domestic wage inequality accounting for about 6% of the total increase. In explaining the increase in wage inequality the factor bias of SBTC was slightly larger than its sector bias, while for outsourcing the sector bias was about 2.5 times as important as its factor bias.
Issued in June 2003.
This paper is available in PDF format.