Low-Skill Offshoring: Labor Market Policies and Welfare Effects

Pablo Agnese and Jana Hromcová

No 8164, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We analyze the effect of low-skill workers offshoring on the welfare of the economy. In the context of a matching model with different possible equilibria, we discuss two policies that could potentially outweigh the negative welfare effects of offshoring, namely, an increase of the unemployment benefits and the flexibilization of the labor market. Our results suggest that, while both policy instruments can theoretically bring the economy back to previous welfare levels, careful thought should be given to the practicability of either measure. In particular, while it would require a significant increase in the unemployment benefits to compensate for the negative welfare effects of offshoring, it would only take a small reduction in the vacancy cost to achieve the same outcome. Not only will this last measure be more financially advantageous, but it will avoid the strong disincentives to work that come with the adoption of the alternative.

Keywords: offshoring; welfare; unemployment benefits; labor market flexibility (search for similar items in EconPapers)
JEL-codes: F66 J68 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2014-05
New Economics Papers: this item is included in nep-lab
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Citations: View citations in EconPapers (1)

Published - published as 'Low-skill offshoring and welfare compensation policies' in: Economic Modelling, 2016, 52, part B, 408 - 426

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Working Paper: Low-Skill Offshoring: Labor Market Policies and Welfare Effects (2014)
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