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Unintended signals: Why companies with a history of offshoring have to pay wage penalties for new hires

Alina Grecu (), Wolfgang Sofka (), Marcus M. Larsen () and Torben Pedersen ()
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Alina Grecu: Copenhagen Business School
Marcus M. Larsen: Copenhagen Business School
Torben Pedersen: Bocconi University

Journal of International Business Studies, 2022, vol. 53, issue 3, No 7, 534-549

Abstract: Abstract We explore how companies with a history of offshoring attract their future employees. We reason that offshoring decisions send unintended signals about job insecurity to companies’ onshore labor markets. This signaling effect implies that offshoring companies must pay higher salaries for new hires than non-offshoring companies. We tested our predictions on a sample of 7971 matched managers and professionals recently hired by offshoring and non-offshoring companies. Our results indicate a 3–7% wage penalty for offshoring companies. Thus, we conclude that not only is offshoring challenging to implement, but it can also entail a number of general ramifications for the domestic labor market.

Keywords: offshoring; hiring; wage penalty; hidden costs; signaling theory (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1057/s41267-021-00486-3

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