Offshoring and Skill-Biased Technical Change in the Context of US Protectionism

Pablo Agnese and Jana Hromcová

No 12593, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We discuss the effects of offshoring on the labor market in a matching model with endogenous adjustment of educational skills. We carry out a comparative statics analysis and show that offshoring leads to a restructuring of the economy through skill-biased technical change (SBTC) where overall welfare is improved. In a policy exercise we show that, if offshoring were to be opposed by a protectionist agenda, labor market flexibility can bring about the same welfare gain. In addition, we offer an empirical analysis aimed at verifying the correlation be- tween offshoring and SBTC in US manufacturing industries in recent years. Our results show that different offshoring strategies affect SBTC differently. In particular, the evidence suggests that while high-skill offshoring strategies open the skill gap, low-skill offshoring strategies tend to work in the opposite direction.

Keywords: skill-biased technical change; skills; offshoring (search for similar items in EconPapers)
JEL-codes: F16 F17 F66 J64 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2019-09
New Economics Papers: this item is included in nep-int and nep-lab
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Published - published as 'Offshoring, welfare, and flexibility in the context of US Protectionism' in: International Economic Journal, 2021, 35 (4), 391 - 410

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