This paper explores the ramifications of international outsourcing on unemployment, income distribution and welfare, a crucial but yet unresolved issue. Using the Harris-Todaro (1970) model of unemployment, it shows that unlike the common view that outsourcing renders negative (positive) impact to income distribution (welfare) of the outsourcing country, its effects on employment, income-distribution, and welfare depend on the sector in which the outsourcing occurs, whereby sectoral factor abundance, outsourcing-unemployment response and the dynamic stability play crucial roles. In particular, when outsourcing occurs in the manufacturing sector, the outsourcing country’s welfare can decrease due to increasing unemployment, and optimum outsourcing exists.