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Offshoring and Labor Income Risk: An Empirical Investigation

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  • Jan Hogrefe
  • Yao Yao

Abstract

This paper analyses how increased offshoring impacts on labor income risk. It is therefore distinct from a large number of studies explaining the level effects of globalization on the labor market in that it takes a look at effects on the variability of incomes. It provides an assessment that directly connects labor income risk and offshoring trends in a panel setting at the industry level. Importantly, we distinguish between transitory and permanent shocks to individual income. Permanent income risk is defined as variance of shocks to income that do not fade out over time. Contrary to transitory short-term fluctuations, it is furthermore assumed to be uninsurable. It thus has a particular relevance for individual welfare. Our findings suggest that offshoring tends to lower permanent income risk. This effect is particularly strong for offshoring to low-income destinations. Hence, there could be potential aggregate welfare gains when domestic firms increasingly offshore production to foreign countries.

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Bibliographic Info

Paper provided by DIW Berlin, The German Socio-Economic Panel (SOEP) in its series SOEPpapers on Multidisciplinary Panel Data Research with number 515.

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Length: 30 p.
Date of creation: 2012
Date of revision:
Handle: RePEc:diw:diwsop:diw_sp515

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Keywords: globalization; offshoring; labor income risk; wages;

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References

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  1. Tom Krebs, 2003. "Human Capital Risk And Economic Growth," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 118(2), pages 709-744, May.
  2. Tom Krebs & Pravin Krishna & William Maloney, 2010. "Trade Policy, Income Risk, and Welfare," The Review of Economics and Statistics, MIT Press, vol. 92(3), pages 467-481, August.
  3. Gene M. Grossman & Esteban Rossi-Hansberg, 2008. "Trading Tasks: A Simple Theory of Offshoring," American Economic Review, American Economic Association, American Economic Association, vol. 98(5), pages 1978-97, December.
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  13. Kjetil Storesletten & Chris I. Telmer & Amir Yaron, 2004. "Cyclical Dynamics in Idiosyncratic Labor Market Risk," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 112(3), pages 695-717, June.
  14. Buch, Claudia M. & Lipponer, Alexander, 2010. "Volatile multinationals? Evidence from the labor demand of German firms," Labour Economics, Elsevier, Elsevier, vol. 17(2), pages 345-353, April.
  15. Dustmann, Christian & Ludsteck, Johannes & Schönberg, Uta, 2007. "Revisiting the German Wage Structure," IZA Discussion Papers 2685, Institute for the Study of Labor (IZA).
  16. Gert G. Wagner & Joachim R. Frick & Jürgen Schupp, 2007. "The German Socio-Economic Panel Study (SOEP) – Scope, Evolution and Enhancements," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, Duncker & Humblot, Berlin, vol. 127(1), pages 139-169.
  17. Robert C. Feenstra & Gordon H. Hanson, 1996. "Globalization, Outsourcing, and Wage Inequality," NBER Working Papers 5424, National Bureau of Economic Research, Inc.
  18. Senses, Mine Zeynep, 2010. "The effects of offshoring on the elasticity of labor demand," Journal of International Economics, Elsevier, Elsevier, vol. 81(1), pages 89-98, May.
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