Trade, offshoring, and the invisible handshake

Bilgehan Karabay and John McLaren

Journal of International Economics, 2010, vol. 82, issue 1, 26-34

Abstract: We study the effect of globalization on the volatility of wages and worker welfare in a model in which risk is allocated through long-run employment relationships (the 'invisible handshake'). Globalization can take two forms: international integration of commodity markets (i.e., free trade) and international integration of factor markets (i.e., offshoring). In a two-country, two-good, two-factor model we show that free trade and offshoring have opposite effects on rich-country workers. Free trade hurts rich-country workers, while reducing the volatility of their wages; by contrast, offshoring benefits them, while raising the volatility of their wages. We thus formalize, but also sharply circumscribe, a common critique of globalization.

Keywords: Offshoring; Implicit; contracts; Invisible; handshake (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (22)

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Working Paper: Trade, Offshoring, and the Invisible Handshake (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:82:y:2010:i:1:p:26-34

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