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Offshoring and unemployment: The role of search frictions labor mobility

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  • Mitra, Devashish
  • Ranjan, Priya

Abstract

In a two-sector, general-equilibrium model with labor-market search frictions, we find that the wage increases and sectoral unemployment decreases upon offshoring in the presence of perfect intersectoral labor mobility. If, as a result, labor moves to the sector with the lower (or equal) vacancy costs, there is an unambiguous decrease in economywide unemployment. With imperfect intersectoral labor mobility, unemployment in the offshoring sector can rise, with an unambiguous unemployment reduction in the non-offshoring sector. Imperfect labor mobility can result in a mixed equilibrium in which only some firms offshore, with unemployment in the offshoring sector rising.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 81 (2010)
Issue (Month): 2 (July)
Pages: 219-229

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Handle: RePEc:eee:inecon:v:81:y:2010:i:2:p:219-229

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Web page: http://www.elsevier.com/locate/inca/505552

Related research

Keywords: Trade Offshoring Search Unemployment;

References

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  1. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877.
  2. Helpman, Elhanan, 2006. "Trade, FDI and the Organization of Firms," CEPR Discussion Papers 5589, C.E.P.R. Discussion Papers.
  3. Elhanan Helpman & Oleg Itskhoki, 2007. "Labor Market Rigidities, Trade and Unemployment," NBER Working Papers 13365, National Bureau of Economic Research, Inc.
  4. Davidson, Carl & Matusz, Steven J. & Shevchenko, Andrei, 2008. "Outsourcing Peter To Pay Paul: High-Skill Expectations And Low-Skill Wages With Imperfect Labor Markets," Macroeconomic Dynamics, Cambridge University Press, vol. 12(04), pages 463-479, September.
  5. Deardorff, A.V., 1998. "Fragmentation in Simple Trade Models," Working Papers 422, Research Seminar in International Economics, University of Michigan.
  6. Karabay, Bilgehan & McLaren, John, 2010. "Trade, offshoring, and the invisible handshake," Journal of International Economics, Elsevier, vol. 82(1), pages 26-34, September.
  7. Shubham Chaudhuri & Erhan Artuç & John McLaren, 2003. "Delay and dynamics in labor market adjustment: Simulation results," Discussion Papers 0304-07, Columbia University, Department of Economics.
  8. Bardhan, Ashok Deo & Kroll, Cynthia, 2003. "The New Wave of Outsourcing," Fisher Center for Real Estate & Urban Economics, Research Reports qt02f8z392, Fisher Center for Real Estate & Urban Economics, UC Berkeley.
  9. Mary Amiti & Shang-Jin Wei, 2004. "Fear of Service Outsourcing: Is It Justified?," NBER Working Papers 10808, National Bureau of Economic Research, Inc.
  10. Jagdish Bhagwati & Arvind Panagariya & T. N. Srinivasan, 2004. "The Muddles over Outsourcing," International Trade 0408004, EconWPA.
  11. Cahuc, Pierre & Wasmer, Etienne, 2001. "Does Intrafirm Bargaining Matter In The Large Firm'S Matching Model?," Macroeconomic Dynamics, Cambridge University Press, vol. 5(05), pages 742-747, November.
  12. repec:aea:jeclit:v:43:y:2005:i:4:p:959-988 is not listed on IDEAS
  13. Gene M. Grossman & Esteban Rossi-Hansberg, 2008. "Trading Tasks: A Simple Theory of Offshoring," American Economic Review, American Economic Association, vol. 98(5), pages 1978-97, December.
  14. Arndt, Sven W., 1997. "Globalization and the open economy," The North American Journal of Economics and Finance, Elsevier, vol. 8(1), pages 71-79.
  15. Mark P. Moore & Priya Ranjan, 2005. "Globalisation vs Skill-Biased Technological Change: Implications for Unemployment and Wage Inequality," Economic Journal, Royal Economic Society, vol. 115(503), pages 391-422, 04.
  16. Mary Amiti & Shang-Jin Wei, 2005. "Service Offshoring, Productivity, and Employment: Evidence from the United States," IMF Working Papers 05/238, International Monetary Fund.
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Citations

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Cited by:
  1. Lo Turco, A. & Maggioni, D. & Picchio, M., 2012. "Offshoring and Job Stability: Evidence from Italian Manufacturing," Discussion Paper 2012-034, Tilburg University, Center for Economic Research.
  2. Andrea F. Presbitero & Matteo G. Richiardi & Alessia Amighini, 2012. "Is labor flexibility a substitute to offshoring? Evidence from Italian manafacturing," LABORatorio R. Revelli Working Papers Series 122, LABORatorio R. Revelli, Centre for Employment Studies.
  3. 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.
  4. Schmerer, Hans-Jörg, 2012. "Foreign direct investment and search unemployment : Theory and evidence," IAB Discussion Paper 201204, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  5. Schmerer, Hans-Jörg, 2012. "Skill-biased labor market reforms and international competitiveness," IAB Discussion Paper 201224, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  6. Tillmann Schwörer, 2012. "Offshoring, Domestic Outsourcing, and Productivity: Evidence for a Number of European Countries," Kiel Working Papers 1786, Kiel Institute for the World Economy.

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