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Peter R. Orszag

Does Outsourcing Explain the Wage Gap?

Maybe, though corporate performance might be the real reason.
A job that gets outsourced.

A job that gets outsourced.

Photographer: Tengku Bahar/AFP/Getty Images)

Increasing wage inequality in the U.S. is associated -- mainly, if not entirely -- with expanding wage gaps between companies rather than within them. But what's causing those gaps to expand? Are the high-paying companies doing something new and different, or are they simply outsourcing the jobs of low-wage workers? 

The outsourcing hypothesis would suggest that the widening wage gap is a red herring, because low-wage workers have merely been shuffled to another company. Indeed, news reports would suggest that domestic outsourcing -- when a company has outside workers do certain jobs -- has become a dominant feature of our economy.