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Skilled-unskilled wage inequality and offshore outsourcing with asymmetric adjustment costs

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Author Info

  • Chakrabarti, Avik
  • Mitra, Rajarshi

Abstract

We present a model that can capture the effects of offshore outsourcing on the wedge between the wages of skilled and unskilled workers when costs of adjustment are asymmetric. We identify conditions under which offshore outsourcing activities widen the skilled-unskilled wage inequality in the presence of asymmetric adjustment costs. We show how a higher cost of adjustment in the import-competing sector can magnify the offshore outsourcing induced gap between the wages of the skilled and unskilled workers. We also demonstrate the sensitivity of the effects of offshore outsourcing, on the skilled-unskilled wage gap, to asymmetries in the costs of adjustment.

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Bibliographic Info

Article provided by Elsevier in its journal International Review of Economics & Finance.

Volume (Year): 19 (2010)
Issue (Month): 2 (April)
Pages: 340-345

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Handle: RePEc:eee:reveco:v:19:y:2010:i:2:p:340-345

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Web page: http://www.elsevier.com/locate/inca/620165

Related research

Keywords: International trade General equilibrium Heckscher-Ohlin-Samuelson theory Adjustment costs Factor price determination Skilled-unskilled wage inequality;

References

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  1. Sanjib Sarker & John Gilbert & Reza Oladi, 2008. "Adjustment Costs and Immiserizing Growth in LDCs," Review of Development Economics, Wiley Blackwell, vol. 12(4), pages 779-791, November.
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  3. Kierzkowski, Henryk, 2005. "Outsourcing and fragmentation: Blessing or threat?," International Review of Economics & Finance, Elsevier, vol. 14(3), pages 233-235.
  4. Julia K. Thomas, 2002. "Is lumpy investment relevant for the business cycle?," Staff Report 302, Federal Reserve Bank of Minneapolis.
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  8. Chaudhuri, Sarbajit & Yabuuchi, Shigemi, 2007. "Foreign Capital and Skilled-unskilled Wage Inequality in a Developing Economy with Non-traded Goods," MPRA Paper 2645, University Library of Munich, Germany.
  9. Kolstad, Charles D & Lee, Jong-Kun, 1993. "The Specification of Dynamics in Cost Function and Factor Demand Estimation," The Review of Economics and Statistics, MIT Press, vol. 75(4), pages 721-26, November.
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  13. Pindyck, Robert S. & Rotemberg, Julio., 1982. "Dynamic factor demands under rational expectations," Working papers 1351-82., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  14. Lichtenberg, Frank R, 1988. "Estimation of the Internal Adjustment Costs Model Using Longitudinal Establishment Data," The Review of Economics and Statistics, MIT Press, vol. 70(3), pages 421-30, August.
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  17. Neary, J Peter, 2006. "Trade Costs and Foreign Direct Investment," CEPR Discussion Papers 5933, C.E.P.R. Discussion Papers.
  18. Avik Chakrabarti, 2006. "Factor price equalization beyond a “cubic” world," Economic Theory, Springer, vol. 27(2), pages 483-491, January.
  19. Ronald W. Jones & Sugata Marjit, 2001. "The Role of International Fragmentation in the Development Process," American Economic Review, American Economic Association, vol. 91(2), pages 363-366, May.
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Citations

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Cited by:
  1. Maroula Khraiche, 2009. "Trade, Firm Structure, and Migration of Talent," Working papers 2009-35, University of Connecticut, Department of Economics.
  2. Beladi, Hamid & Oladi, Reza, 2011. "An elementary proposition on technical progress and non-traded goods," Journal of Mathematical Economics, Elsevier, vol. 47(1), pages 68-71, January.
  3. Anwar, Sajid, 2013. "Outsourcing and the skilled–unskilled wage gap," Economics Letters, Elsevier, vol. 118(2), pages 347-350.
  4. Pi, Jiancai & Zhou, Yu, 2013. "Institutional quality and skilled–unskilled wage inequality," Economic Modelling, Elsevier, vol. 35(C), pages 356-363.
  5. Pi, Jiancai & Zhou, Yu, 2012. "Public infrastructure provision and skilled–unskilled wage inequality in developing countries," Labour Economics, Elsevier, vol. 19(6), pages 881-887.
  6. Anwar, Sajid & Sun, Sizhong & Valadkhani, Abbas, 2013. "International outsourcing of skill intensive tasks and wage inequality," Economic Modelling, Elsevier, vol. 31(C), pages 590-597.

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