How does offshoring affect the wage impact of immigration?

Economic literature has recently begun to recognize that the labor market effects of immigration and offshoring are not always independent. The full set of mechanisms through which immigration and offshoring interact is still not well understood. This study demonstrates that the effect of low-skilled immigration on wages of American workers depends on the level of offshoring exposure and explains the likely economic mechanism responsible. Empirically, we find that wages of low-skilled natives decrease due to low-skilled immigration, but the wage effect of immigration becomes less negative with more offshoring. A theoretical model demonstrates that offshoring reduces native wage elasticity in response to immigration if it decreases immigrant wage share; this happens if a relatively larger share of immigrant than native jobs is offshored, causing immigrants to shift to tasks in which they have lower comparative advantage.