Institute for Research on Labor and Employment

Outsourcing of labor services grew substantially during the eighties and nineties, and was associated with lower wages, less benefits, and lower rates of unionization. We focus on two occupations for which we can identify outsourcing using industry and occupation codes: janitors and guards. Across a wide array of specifications, we find that the outsourcing wage penalty ranges between 4% and 7% for janitors and between 8% and 24% for guards. Our findings on health benefits mirror those on wages. We provide evidence that the outsourcing penalty is not due to compensating differentials for higher benefits or lower hours, skill differences, or the type of industries which outsource. Overall, the evidence suggests that outsourcing has reduced labor market rents for workers, especially for those in the upper half of the occupational wage distribution. Industries with higher historical wage premia were more likely to outsource service work over this period.