Offshoring and non-monotonic employment effects across industries in general equilibrium

Michael Koch, Michael Irlacher and Daniel Baumgarten

VfS Annual Conference 2018 (Freiburg, Breisgau): Digital Economy from Verein für Socialpolitik / German Economic Association

Abstract: We address the mismatch between existing theoretical models and standard empirical practice in the analysis of the labor market effects of offshoring. While theory focuses on one-sector or two-sector models, empirical studies exploit variation in offshoring across a large number of industries, typically including a linear offshoring term in the analysis. Thereby, these studies implicitly assume a monotonic relationship and ignore general-equilibrium effects across industries. We analyze the effects of offshoring across a continuum of industries with different shares of offshorable tasks that are linked through labor and capital markets in general oligopolistic equilibrium (GOLE). Our main result is that offshoring generates a hump-shaped pattern of employment changes across industries. While the relocation effect reduces employment in offshoring-intensive industries, labor demand in industries with a high prevalence of domestic production falls because of rising domestic wages and firm exits in general equilibrium. In the empirical part, we test the non-monotonic employment effects of offshoring across industries by focusing on Germany after the fall of the Iron Curtain. We find strong empirical support for the hump shape in the changes of employment across industries with different scopes for offshoring, which is almost entirely due to the extensive margin, underscoring the importance of establishment entry and exit. Finally, we discuss important implications for empirical and theoretical research arising from our study.

Keywords: General oligopolistic equilibrium; Task offshoring; Offshoring and employment; Industry heterogeneity (search for similar items in EconPapers)
JEL-codes: F12 F16 F23 J23 L13 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/181560/1/VfS-2018-pid-13365.pdf (application/pdf)

Related works:
Journal Article: Offshoring and non-monotonic employment effects across industries in general equilibrium (2020)
Working Paper: Offshoring and Non-Monotonic Employment Effects across Industries in General Equilibrium (2020)
Working Paper: Offshoring and non-monotonic employment effects across industries in general equilibrium (2020)
Working Paper: Offshoring and non-monotonic employment effects across industries in general equilibrium (2018)
Working Paper: Offshoring and non-monotonic employment effects across industries in general equilibrium (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc18:181560

Access Statistics for this paper

More papers in VfS Annual Conference 2018 (Freiburg, Breisgau): Digital Economy from Verein für Socialpolitik / German Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().