Working apart: Domestic outsourcing in Europe

Abstract

Lower-skilled workers face increasing pressures. Their bargaining position is declining under the twin pressures of globalisation and technological change; and they risk losing access to better positions as firms’ pay and conditions arrangements increasingly drift apart. Rising between-firm differences partly come about through increasing separation of lower-skilled workers into lower-paying firms with worse conditions, thereby reducing their opportunities further. Such polarisation is partly driven by (domestic) outsourcing where main firms take certain tasks that are seen as non-core out of their payroll, instead purchasing those same tasks from another official employer or temporary employment agency while retaining control. Outsourcing generally brings worse conditions and lower pay. This paper uses cross-national European data from the Labour Force Survey (LFS) along with contextual data to study how outsourcing – proxied by moves to business services providers or temporary employment agencies – contributes to a worse labour market position of lower-educated workers over time. I find that (1) domestic outsourcing is increasing over time across Europe; (2) outsourced workers are working under generally worse conditions than their counterparts; and (3) this process is not universal: it hits harder in sectors with greater technological innovation and can be alleviated by union density and worker representation.