Offshoring and unemployment: The role of search frictions labor mobility

Devashish Mitra () and Priya Ranjan
Authors registered in the RePEc Author Service: Priyaranjan Jha

Journal of International Economics, 2010, vol. 81, issue 2, 219-229

Abstract: In a two-sector, general-equilibrium model with labor-market search frictions, we find that the wage increases and sectoral unemployment decreases upon offshoring in the presence of perfect intersectoral labor mobility. If, as a result, labor moves to the sector with the lower (or equal) vacancy costs, there is an unambiguous decrease in economywide unemployment. With imperfect intersectoral labor mobility, unemployment in the offshoring sector can rise, with an unambiguous unemployment reduction in the non-offshoring sector. Imperfect labor mobility can result in a mixed equilibrium in which only some firms offshore, with unemployment in the offshoring sector rising.

Keywords: Trade; Offshoring; Search; Unemployment (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (73)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:81:y:2010:i:2:p:219-229

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