Disentangling the Wage Impacts of Offshoring on a Developing Country: Theory and Policy
Subhayu Bandyopadhyay (),
Arnab Basu (),
Nancy Chau () and
Devashish Mitra ()
No 9973, IZA Discussion Papers from Institute of Labor Economics (IZA)
The various channels through which a reduction in the cost of offshoring can improve wages in a developed country are by now well understood. But does a similar reduction in the offshoring cost also 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 or worsen as well as those where wages exhibit an inverted U-shaped relationship in response to parametric reductions in the cost of offshoring. We identify qualitative conditions under which wages and welfare increase or decrease in the developing world as a result of a reduction in offshoring costs. 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: wage tax; international offshoring; wages; minimum wage (search for similar items in EconPapers)
JEL-codes: F11 F13 F16 F66 O19 O24 (search for similar items in EconPapers)
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Working Paper: Disentangling the Wage Impacts of Offshoring On a Developing Country: Theory and Policy (2016)
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