Trade in tasks: Revisiting the wage and employment effects of offshoring

Wilhelm Kohler and Jens Wrona

No 320, DICE Discussion Papers from Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE)

Abstract: We revisit Grossman and Rossi-Hansberg's (2008) famous result, that under certain conditions offshoring of low-skilled labor tasks raises the domestic wage for low-skilled workers. Our re-examination features a less benign environment where Rybczynski-type reallocation of factors to absorb offshoring-induced job displacement is ruled out. We allow for simultaneous offshoring of both skilled and unskilled labor, and we derive new results on the role of factor-bias in offshoring, identifying conditions under which offshoring has a "lifiting-all-boats" effect benefitting all workers. Extending our analysis to a frictional labor market with equilibrium unemployment due to costly matching, we demonstrate that under these same conditions offshoring is also associated with rising employment.

Keywords: Offshoring; Trade in Tasks; Wages; Unemployment; Search and Matching (search for similar items in EconPapers)
JEL-codes: F11 F16 J64 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-int and nep-lab
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:dicedp:320

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