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Offshoring, Exporting, and Jobs

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  • Jose L. Groizard
  • Priya Ranjan
  • Antonio Rodriguez-Lopez

Abstract

We construct a two-sector model - one producing a homogeneous good and the other producing differentiated goods - with labor market frictions to study the impact of offshoring on intrafirm, intrasectoral, and intersectoral reallocation of jobs, and on the economy-wide unemployment rate. A reduction in the offshoring cost affects intrafirm and intrasectoral reallocation in the differentiated-good sector through a job-relocation effect, a productivity effect, and a competition effect. The key parameters determining the impact of offshoring on reallocation of jobs at various margins as well as on the economy-wide unemployment rate are the elasticity of substitution between inputs and the elasticity of demand for differentiated goods. Allowing differentiated-good firms to export creates an additional channel through which a reduction in the cost of offshoring affects jobs and unemployment. We also show that the implications of a reduction in the cost of trading final goods are different from those of a reduction in the offshoring cost.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4550.

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Date of creation: 2013
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Handle: RePEc:ces:ceswps:_4550

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Keywords: heterogeneous firms; offshoring costs; search frictions; unemployment;

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  1. 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.
  2. Carl Davidson & Steven J. Matusz, 2005. "Trade and Turnover: Theory and Evidence," Review of International Economics, Wiley Blackwell, vol. 13(5), pages 861-880, November.
  3. David Hummels & Rasmus J?rgensen & Jakob Munch & Chong Xiang, 2014. "The Wage Effects of Offshoring: Evidence from Danish Matched Worker-Firm Data," American Economic Review, American Economic Association, vol. 104(6), pages 1597-1629, June.
  4. Pierre Biscourp & Francis Kramarz, 2004. "Employment, Skill Structure and International Trade : Firm-level Evidence for France," Working Papers 2004-28, Centre de Recherche en Economie et Statistique.
  5. Amiti, Mary & Konings, Jozef, 2005. "Trade Liberalization, Intermediate Inputs and Productivity: Evidence from Indonesia," CEPR Discussion Papers 5104, C.E.P.R. Discussion Papers.
  6. Carl Davidson & Steven J. Matusz, 2004. "International Trade and Labor Markets: Theory, Evidence, and Policy Implications," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number itlm.
  7. Moen, E.R., 1995. "Competitive Search Equilibrium," Memorandum 37/1995, Oslo University, Department of Economics.
  8. Gene M. Grossman & Esteban Rossi-Hansberg, 2006. "Trading Tasks: A Simple Theory of Offshoring," NBER Working Papers 12721, National Bureau of Economic Research, Inc.
  9. Helpman, Elhanan & Itskhoki, Oleg, 2009. "Labor Market Rigidities, Trade, and Unemployment," CEPR Discussion Papers 7502, C.E.P.R. Discussion Papers.
  10. Charles I. Jones, 2011. "Intermediate Goods and Weak Links in the Theory of Economic Development," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(2), pages 1-28, April.
  11. Steven J. Davis & R. Jason Faberman & John Haltiwanger, 2006. "The Flow Approach to Labor Markets: New Data Sources and Micro-Macro Links," NBER Working Papers 12167, National Bureau of Economic Research, Inc.
  12. Gita Gopinath & Brent Neiman, 2011. "Trade adjustment and productivity in large crises," Working Papers 11-9, Federal Reserve Bank of Boston.
  13. Pinelopi K. Goldberg & Amit Khandelwal & Nina Pavcnik & Petia Topalova, 2008. "Imported Intermediate Inputs and Domestic Product Growth: Evidence from India," NBER Working Papers 14416, National Bureau of Economic Research, Inc.
  14. Priya Ranjan, 2012. "Offshoring, Unemployment, and Wages: The Role of Labor Market Institutions," Working Papers 121302, University of California-Irvine, Department of Economics.
  15. Petia Topalova & Amit Khandelwal, 2011. "Trade Liberalization and Firm Productivity: The Case of India," The Review of Economics and Statistics, MIT Press, vol. 93(3), pages 995-1009, August.
  16. Ibsen, Rikke & Warzynski, Frederic & Westergård-Nielsen, Niels, 2009. "Employment Growth and International Trade: A Small Open Economy Perspective," Working Papers 09-9, University of Aarhus, Aarhus School of Business, Department of Economics.
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