Essays on outsourcing, technological adoption and unemployment

Abstract

This thesis is made up of two essays. The first essay examines the relationship between technology adoption and employment in a small open economy model. Human capital plays a crucial role in the technology adoption and, subsequently, employment of workers. An increase in human capital enables better use of existing technology and reduces job loss and promotes employment, but raises technology adoption aspect of creative destruction, increasing job loss and thus reducing employment. The latter effect dominates the former upon breaching the threshold, resulting in an increase in unemployment.The second essay considers a two-country model of production of the service good with different quality, with the firm in each country competing in price and quality. Constrained by local provision of the service good, the firm faces the choice of either adopting the integrated mode of production or outsourcing the intermediate good domestically. There exists a threshold level of human capital whereby integration (outsourcing) is adopted when human capital level is below (above) the threshold. As human capital increases, the cost of outsourcing the intermediate decreases relative to wage cost, thus the firm is able to reduce the per unit employment sufficiently and yet produce a sufficiently high quality of the product at a low price-to-quality ratio.