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Offshoring in Developing Countries: Labor Market Outcomes, Welfare, and Policy

Subhayu Bandyopadhyay (), Arnab Basu (), Nancy Chau () and Devashish Mitra ()

No 2016-11, Working Papers from Federal Reserve Bank of St. Louis

Abstract: Does a reduction in offshoring cost benefit workers in the world's factories in developing countries? Using a parsimonious two-country model of offshoring we find very nuanced results. These include cases where wages monotonically improve, worsen, as well as where wages exhibit an inverted U-shaped relationship with the offshoring cost. We identify qualitative conditions under which these relationships hold. Since global welfare always rises with an improvement in offshoring technology, we find that there is a role for a wage tax or a minimum wage in the developing country. We derive the optimal levels of such policies.

Keywords: Wages; International Offshoring; Wage Tax; Minimum Wage (search for similar items in EconPapers)
JEL-codes: F11 F13 F16 F66 O19 O24 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int
Date: 2016-05-31, Revised 2017-04-01
Note: Title changed.
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DOI: 10.20955/wp.2016.011

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