Contracting-out and the Interindustry Wage Structure: Do Norms of Internal Equity Matter in Wage Determination?

This paper compares the wage of a worker performing an activity for an outside contractor with the wage that the firm contracting for this service would have paid were this worker on its payroll (i.e., working in-house). If norms of internal equity were a binding constraint, the wage paid by the outside contractor should not be expected to be identical to the in-house wage. Our results, obtained using data from the U.S. Current Population Survey and the Input-Output matrix, are consistent with the view that norms of internal equity are binding.