Cutting hours through outsourcing

Over recent decades, rising inequality between firms and the fragmentation of production have reshaped labour markets. One key mechanism is the “fissuring” of firms, where low-skilled tasks are increasingly outsourced to subcontractors.

In this paper, Olivier Godechot and Ulysse Lojkine study the effects of on-site outsourcing of low-skilled service jobs (cleaning, catering, security) in France, using matched employer–employee administrative data (DADS) over 2001–2019 combined with survey and interview evidence.

Key findings:

• Outsourced workers experience a substantial earnings penalty of about 10 log points, which persists for up to 7 years after outsourcing.
• Unlike prior literature, this penalty is driven primarily by reduced working time (fewer hours per week and fewer days worked per year), not by lower hourly wages.
• Hourly wage effects are small and inconsistent, contributing only marginally to the overall earnings decline.
• Outsourcing negatively affects employment: workers are less likely to be employed during the year and more likely to receive unemployment benefits without earnings.
• The negative impacts of outsourcing are stronger for women than men, and even more for migrants.
• Qualitative interviews suggest firms compete by cutting hours on contracts, leading to work intensification for employees and reduced service quality.

Authors:

• Olivier Godechot, Sciences Po, CRIS-CNRS and AxPo, World Inequality Lab
• Ulysse Lojkine, Sciences Po, CRIS-CNRS and AxPo, World Inequality Lab