Trade, Offshoring, and the Invisible Handshake

Bilgehan Karabay and John McLaren

No 15048, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study the effect of globalization on the volatility of wages and worker welfare in a model in which risk is allocated through long-run employment relationships (the 'invisible handshake'). Globalization can take two forms: International integration of commodity markets (i.e., free trade) and international integration of factor markets (i.e., offshoring). In a two-country, two-good, two-factor model we show that free trade and offshoring have opposite effects on rich-country workers. Free trade hurts rich-country workers, while reducing the volatility of their wages; by contrast, offshoring benefits them, while raising the volatility of their wages. We thus formalize, but also sharply circumscribe, a common critique of globalization.

JEL-codes: F10 F16 (search for similar items in EconPapers)
Date: 2009-06
New Economics Papers: this item is included in nep-bec
Note: ITI
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Published as Karabay, Bilgehan & McLaren, John, 2010. "Trade, offshoring, and the invisible handshake," Journal of International Economics, Elsevier, vol. 82(1), pages 26-34, September.

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Journal Article: Trade, offshoring, and the invisible handshake (2010)
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