Offshoring, Unemployment, and Wages: The Role of Labor Market Institutions

Priya Ranjan (pranjan@uci.edu)
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Priya Ranjan: Department of Economics, University of California-Irvine
Authors registered in the RePEc Author Service: Priyaranjan Jha

No 121302, Working Papers from University of California-Irvine, Department of Economics

Abstract: It is shown that when wages are determined through collective bargaining, there is a non-monotonic relationship between the cost of o§shoring and unemployment. Starting from a high cost of off- shoring, a decrease in the cost of o§shoring reduces unemployment first and then increases it. The non-monotonicity of unemployment in the cost of offshoring does not obtain if wages are determined by individual Nash bargaining instead of collective bargaining. The non-monotonic relationship between the cost of offshoring and unemployment is verified through a calibration exercise performed using parameters for Sweden. The calibration exercise predicts that a decrease in the cost of o§shoring, starting from the present level, would reduce unemployment in Sweden. In a two country framework of o§shoring (source country and host country) it is shown how changes in the labor market institutions in one country affect labor market outcomes in both countries.

Keywords: Offshoring; Unemployment; Collective bargaining; Unions; Unemployment benefits; Recruitment cost (search for similar items in EconPapers)
JEL-codes: F16 J50 J64 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2012-07
New Economics Papers: this item is included in nep-int and nep-lab
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Related works:
Journal Article: Offshoring, unemployment, and wages: The role of labor market institutions (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:irv:wpaper:121302

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