Offshoring, Productivity, and Labor Income Risk

Prathi Seneviratne
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Prathi Seneviratne: Carleton College

No 2015-01, Working Papers from Carleton College, Department of Economics

Abstract: This paper uses panel data from the US to study the impact of globalization on the mean and variance of individual wages at the industry level. Globalization is measured in several ways; import penetration and export intensity, which capture international exposure in goods markets, and offshoring intensity, which captures exposure in factor markets. Preliminary results show that globalization increases industry-level multifactor productivity, which translates to higher wages, and but the impact on wage volatility depends on the type of exposure to international markets: import penetration raises wage volatility, while offshoring intensity reduces it. This suggests that import competition generates a trade-off between higher wages and higher wage volatility, with ambiguous welfare effects on workers, while offshoring makes workers unambiguously better off by raising wages and reducing unobservable wage risk.

Date: 2015-11
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