In this paper, we investigate the impact of globalization on wages earned by low- and high-skill workers when openness leads to the outsourcing of high-tech jobs abroad. We have shown that low-skill workers may become considerably better off after globalization because high-skill workers start accepting low-tech jobs. The switch in the behavior of high-skill workers brings about general equilibrium responses from the firm side of the labor market with the outside options for low-skill workers improving significantly. This feedback works as a magnification mechanism that leads to a discontinuous wage increase that one would not be able to get without careful modeling of the frictions in the labor market.
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Volume (Year): 12 (2008) Issue (Month): 04 (September) Pages: 463-479 Download reference. The following formats are available: HTML
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Devashish Mitra & Priya Ranjan, 2007.
"Offshoring and Unemployment,"
Working Papers
060719, University of California-Irvine, Department of Economics.
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