Organizational restructuring during the 1980s consisted in part of efforts by large and small firms alike to achieve functional, wage or numerical `flexibility' in their relationships with employees. The practice of contracting-out, or `outsourcing' work which might otherwise have been performed `in-house', is one aspect of numerical flexibility. From analysis of a nationally representative sample of production managers in one thousand manufacturing establishments in the US, conducted in 1986-87, we find that management's motivation for engaging in this practice is multi-dimensional. The relatively high cost of labour is only one among several factors favouring the use of subcontracting. In addition, a significant fraction of manufacturing outsourcing is motivated by managers' desire to access specialized assets - such as tooling and skilled labour - that are available only (or most expeditiously) by `going outside'. Greater scope (product diversity) at the level of the production process and size (as a proxy for resourcefulness) at the firm level increase the likelihood that managers will outsource production.
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