The impact of offshoring on temporary workers: evidence on wages from South Korea

Trade literature has found that the impact of globalization on the domestic labor market depends, among other factors, on the sourcing country’s income level, the education level of domestic workers, and the occupations involved. This paper investigates another factor that might determine the effects of globalization on the domestic labor market: the worker’s contract type (i.e. permanent vs. temporary contract). We pay particular attention to wages and examine whether the contract type influences the impact of offshoring. Individual-level wage data from the Korean Labor & Income Panel Study during 1999–2007, linked to industry-level offshoring data from the World Input–Output Database are used to answer this question. Even after controlling for individual worker and employer characteristics, industry, and occupation, we find that South Korean manufacturing workers’ wages increase as offshoring increases, but this impact is significantly weaker for temporary workers. Thus, our findings support public concern that globalization exacerbates inequality and shows that one potential channel of growing inequality is the contract type. Copyright Kiel Institute 2015