Labor market effects of bounds on domestic outsourcing

Abstract

In early 2022, Peru enacted regulations to curtail widespread outsourcing, limiting it to activities outside a firm’s core functions. Utilizing quarterly data from Peru’s National Household Surveys (ENAHO) from 2021 to 2022 and yearly data from 2023, this study applies difference-in-differences techniques to assess short-term labor market outcomes. Results show that while outsourcing decreased by 1.7 percentage points, the restrictions had no significant adverse effects on employment, wages, or labor formalization. If anything, employment and labor force participation showed slight, though non-causal, increases. These findings are robust to various tests and alternative specifications, suggesting that the policy primarily impacted outsourcing practices without markedly influencing broader labor outcomes. It did neither destroy jobs nor improve workers’ employment conditions.