Accessing Resources in a Global Economy: Three Essays on Outsourcing and Immigration
Immigration , Outsourcing
This thesis is a collection of three manuscripts. In the first manuscript I develop a general equilibrium model that explains the growth and maturation of outsourcing – an outsourcing lifecycle – based on industry learning and market feedback. When outsourcing starts, buyers lack the knowledge to develop effective contracts so they rely on relationships. As contract knowledge develops, contracts become stronger and eventually replace relationships as the primary form of governance and the market grows. Under contractual governance, continued strengthening of contracts benefits buyers. The size of the market determines whether suppliers benefit or suffer with increased contracts strength. The second manuscript explores the design of an optimal skills-based immigrant selection system based. This system is based on two factors: a threshold in predicted-earnings that is used to determine whom to accept and reject, and a human-capital-based earnings regression for making error-minimizing predictions of immigrant success in the host labor market. We first show how to design a points system based on what we assume to be the optimal predicted-earnings threshold and the optimal prediction regression. We next develop a method for identifying the optimal threshold given the prediction regression. The method produces a “selection frontier” that dictates the options facing policy makers. The frontier shows the tradeoff between the average quality of admitted immigrants and the number of immigrants admitted. The frontier shifts out with improved accuracy in predicting earnings as well as with increases in the variation and average quality of the applicant pool. Finally, we show how the policy maker chooses the optimal selection system given the selection frontier. The third manuscript demonstrates the feasibility of the optimal immigrant selection method by developing an illustrative points system. We also explore how the selection system can be improved by incorporating additional information such as country-of-origin characteristics and intended occupations. We discuss what our findings imply for the debate about the relative merits of points- and employment-based systems for selecting economic immigrants.