Journal of Labor Economics 2026
A Quantitative Theory of Domestic Outsourcing: The Role of Wage-Proportional Staffing Fees
Abstract
Domestic labor outsourcing allows individuals to work under the management of a user firm while legally remaining employees of a staffing agency. These staffing agencies provide fast matches while continually charging fees proportional to the worker’s wage. I explore the trade-offs associated with these jobs in a directed search model with endogenous human capital investment and endogenous sorting into outsourced and non-outsourced jobs. I show that this staffing fee structure can amplify existing frictions caused by incomplete contracts. Workers in outsourced jobs under-invest in human capital relative to those in non-outsourced jobs, as the staffing fee lowers the return to human capital investment. Despite this underinvestment, total utility is higher in an economy with unrestricted outsourcing than without outsourcing. However, mild restrictions allowing outsourcing only in jobs employing workers with sufficiently high human capital can slightly improve welfare.
- DOI
- 10.1086/741126
- Language
- en
- Sources
- semanticscholar openalex crossref