Does Outsourcing Always Benefit Skilled Labor?

This paper builds a dynamic product cycle model with three kinds of labor inputs-scientists, white-collar workers, and blue-collar workers-and producer heterogeneity to find an explanation for why outsourcing did not cause wage inequality in the 1970s. According to the theoretical model, outsourcing decreases the wages of white-collar workers and the relative wages of white-collar workers to blue-collar workers in the outsourcing home country if outsourcing industries are blue-collar worker intensive compared with non-outsourcing industries. Scientists who conduct research and development always benefit from outsourcing.