Implications of Firm Heterogeneity for Offshoring, Wage and Employment

Xi Chen

No 191, FIW Working Paper series from FIW

Abstract: The received wisdom is that cheaper foreign inputs may replace tasks previously done by domestic labor, and cause displacement of workers at the home country. However, using the U.S. multinational enterprises data, the empirical evidence in this paper does not support the idea that the imported intermediate input from foreign affiliates necessarily substitutes the domestic labor force at the sector-level. In order to better elucidate the offshoring employment relationship, this paper develops a general equilibrium model with monopolistic competition and firm heterogeneity. The model features (i) a fair wage condition where firms pay a real wage that exceeds the market clearing level and varies with productivity; (ii) an open economy in which firms can move a part of their production process to foreign countries. This model allows us to examine how a production-side shock that changes firms' offshoring decision can influence the local economy and its labor market.

Keywords: Heterogeneous firms; productivity; offshoring; fair wage; employment (search for similar items in EconPapers)
JEL-codes: D21 D24 F12 F16 F66 (search for similar items in EconPapers)
Pages: 45
Date: 2018-12
New Economics Papers: this item is included in nep-int
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