Offshoring and labor income risk

Jan Hogrefe () and Yao Yao

No 12-025, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: This paper analyzes the impact increased offshoring has on labor income risk. It is therefore distinct from a large number of studies explaining the level effects of globalization on the labor market in that it takes a look at effects on second moments, i.e. the variance of incomes. It provides an assessment that directly connects labor income risk and offshoring trends at the sector level. Importantly, we distinguish between transitory and permanent shocks to individual income. Permanent income risk is defined as variance of shocks to income that do not fade out over time and are assumed to be not self-insurable. It thus has a particular relevance for individual welfare. Our findings suggest that offshoring tends to lower permanent income risk. This effect is particularly strong for offshoring to low-income destinations. Hence, there could be potential welfare gains when domestic firms increasingly offshore production to foreign countries.

Keywords: trade; offshoring; wages; labor income risk (search for similar items in EconPapers)
JEL-codes: E24 F16 F23 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:12025

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