Penalties and Premiums: An Investigation of Inter-Firm Transactions and Wages Across Industries in the U.S.



This paper explores the correlation between inter-firm transactions (IFT) and workers’ wages across industries in the U.S., in order to further our understanding of outsourcing-related wage penalties. Using a new typology and methodology for measuring IFT, I find that the aggregate correlation between IFT and wages is positive across all industries, but that a dummy variable identifying services that could feasibly be produced in-house by the purchaser has a negative pull on the correlation. Further analysis of IFT and wages for specific occupations and industries reveals a complex and heterogeneous relationship, and points to the importance of exploring additional qualitative aspects of transactions between firms, as well as other factors that have affected workers’ wages. This analysis helps us refine our understanding of which type of IFT are relevant for understanding wage penalties related to domestic outsourcing.