Answer to Question #59288 in Economics of Enterprise for avinash

Question

One of the key features of the global economy is that wages of skilled workers have risen relative to unskilled workers in both industrialised and developing economies. Explain why and how this empirical phenomenon is better explained by the Foreign Outsourcing model than by the Heckscher-Ohlin model

Answer 1

Outsourcing is a practice used by different companies to reduce costs by transferring portions of work to outside suppliers rather than completing it internally. Foreign outsourcing is the use of skilled workers from abroad, if they are more competitive and their salaries are lower, than of the national workers. Skilled workers have risen relative to unskilled workers in both industrialised and developing economies, because the industries of industrialized and developing economies need more and more specialized and high-skilled workers according to constant improvements in technology, so the demand for them in international labor market increases and their salaries increase too. But there is a constant demand for unskilled workers, so their salaries are constant too.