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Outsourcing of labor services grew substantially during the eighties and nineties, and was associated with lower wages, less benefits, and lower rates of unionization. The authors focus on two occupations for which they can identify outsourcing using industry and occupation codes: janitors and guards. Across a wide array of specifications, they find that the outsourcing wage penalty ranges between 4% and 7% for janitors and between 8% and 24% for guards. The findings on health benefits mirror those on wages. They 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.
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