A Transaction Cost Economics View of Outsourcing
Boniface Michael, Rashmi Michael

Abstract
In this paper, we examine the incidence of outsourcing of jobs by US firms from a Transaction Cost Economics perspective. We also examine if there are adjustment difficulties that displaced workers face due to job loss. For this study, we analyzed Mass Layoff Survey (MLS) and Displaced Workers Survey (DWS) data for the period 1996 to 2004 collected by the Bureau of Labor Statistics (BLS). The analysis finds that Finance and Insurance, Information, and Professional and Technical Services sectors experienced an increase in the separation events due to Mass Layoffs. Displaced workers within the age group of 35 to 44 years were the longest out of a job with the time taken to find a job standing at 6.3 weeks. Those in the age group of 25 to 34 years found jobs in 3 weeks. Educated workers with advanced degrees were able to find alternate employment within 1 week, while those with a high school degree were out of a job for 7.1 weeks. Overall, displaced workers experienced a 7.2 percent earnings loss when reemployed. 26.4% of the displaced workers faced an earnings loss of over 20% when reemployed. These consequences have implications for policy makers, managers and workers.


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