Offshoring, Matching, and Wage Inequality: Theory and Evidence

Gueyon Kim (), Dohyeon Lee and Dario Pozzoli ()
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Gueyon Kim: University of California, Santa Cruz
Dohyeon Lee: Amazon
Dario Pozzoli: Copenhagen Business School

No 17663, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper examines how offshoring affects worker skill demands and studies its implications for wage inequality. Using Danish administrative data, we find that offshoring increases firm-level demand for higher skills in occupations with high exposure to foreign competition. This effect is more pronounced in low-productivity firms, highlighting distributional impacts across firms. By constructing a Becker-type worker-firm matching model in a global economy, we demonstrate underlying mechanisms and quantify the role of offshoring-induced adjustments. Offshoring increases firm similarity in worker skill and wages within high-exposed jobs, leading to a decrease in between-firm inequality—a contrast to the effects of technological change.

Keywords: offshoring; worker-firm matching; segregation by skill; wage inequality; between-firm inequality (search for similar items in EconPapers)
JEL-codes: C78 F14 F16 J24 J31 (search for similar items in EconPapers)
Pages: 71 pages
Date: 2025-01
New Economics Papers: this item is included in nep-int and nep-lma
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