Offshoring and Unemployment: The Role of Search Frictions and Labor Mobility

Devashish Mitra () and Priya Ranjan ()
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Priya Ranjan: University of California, Irvine
Authors registered in the RePEc Author Service: Priyaranjan Jha

No 4136, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: In a two-sector, general-equilibrium model with labor-market search frictions, we find that 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 in the industry offshore, with unemployment in this sector rising.

Keywords: unemployment; search; offshoring; trade (search for similar items in EconPapers)
JEL-codes: F11 F16 J64 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2009-04
New Economics Papers: this item is included in nep-dge, nep-int and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Published - published in: Journal of International Economics, 2010, 81 (2), 219-229

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