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Revisiting the employment impact of offshoring

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  • Wright, Greg C.

Abstract

The productivity gains due to offshoring may, in part, accrue to workers. This paper estimates the magnitude of these gains and compares it to the magnitude of employment loss due to worker displacement. A model based on the production task framework from Grossman and Rossi-Hansberg (2008) is used to demonstrate that the effect of offshoring depends on the intensity of use of these tasks and, ultimately, impacts domestic employment through three channels: a direct displacement effect, which negatively impacts employment; an output effect generated by the productivity gains from offshoring, which reorganizes and increases aggregate production in the economy and impacts domestic employment positively; and a substitution effect among factors and tasks, which has an ambiguous effect. Using the model's structure as a roadmap and applying it to detailed U.S. manufacturing sector data over 2001–2007, results from GMM 3SLS regressions provide overall support for the structure and predictions of the tasks model of offshoring. In particular, the economic magnitude of the productivity gains is found to have been important.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 66 (2014)
Issue (Month): C ()
Pages: 63-83

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Handle: RePEc:eee:eecrev:v:66:y:2014:i:c:p:63-83

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Web page: http://www.elsevier.com/locate/eer

Related research

Keywords: Tasks offshoring; Offshoring and employment;

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References

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Cited by:
  1. Federico Mandelman, 2013. "Labor Market Polarization and International Macroeconomic Dynamics," 2013 Meeting Papers, Society for Economic Dynamics 291, Society for Economic Dynamics.
  2. Pol Antràs & Stephen R.Yeaple, 2013. "Multinational Firms and the Structure of International Trade," NBER Working Papers 18775, National Bureau of Economic Research, Inc.
  3. Hogrefe, Jan, 2013. "Offshoring and relative labor demand from a task perspective," ZEW Discussion Papers 13-067, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  4. Thede, Susanna, 2012. "A Simple Model of Trade, Job Task Offshoring and Social Insurance," Working Papers, Lund University, Department of Economics 2012:16, Lund University, Department of Economics.
  5. Cosimo BEVERELLI & Gianluca OREFICE & Nadia ROCHA, 2011. "Offshoring and migration in a world with policy spillovers," Departmental Working Papers, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano 2011-25, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
  6. Andrei Zlate & Federico Mandelman, 2013. "Offshoring, Low-skilled Immigration and Labor Market Polarization," 2013 Meeting Papers, Society for Economic Dynamics 1073, Society for Economic Dynamics.
  7. Kohler, Wilhelm & Wrona, Jens, 2011. "Offshoring tasks, yet creating jobs?," University of Tuebingen Working Papers in Economics and Finance 12, University of Tuebingen, Faculty of Economics and Social Sciences.

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