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Fairness, Search Frictions, and Offshoring

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Author Info

  • Devashish Mitra

    () (Department of Economics, Syracuse University)

  • Priya Ranjan

    () (Department of Economics, University of California-Irvine)

Abstract

Fairness considerations within the firm are introduced into the determination of wages in a two factor Pissarides-style model of search unemployment to study its implications for the unemployment rates of unskilled and skilled workers in both the closed economy case and when the economy can offshore some inputs. While the effect of a fair-wage constraint on unskilled workers takes the form of an increase in their wage and unemployment, we also Önd interesting effects on skilled workers in a closed economy. The skilled wage and skilled unemployment move in directions opposite to each other, with the actual direction of their movement depending on the elasticity of substitution between skilled and unskilled labor. The impact of offshoring of the services of unskilled labor on the unemployment of unskilled workers is stronger in the presence of fairness considerations than in the case when search frictions are the only source of unemployment. Finally, offshoring insulates the skilled labor market outcomes from fairness concerns that are present in a closed economy.

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Bibliographic Info

Paper provided by University of California-Irvine, Department of Economics in its series Working Papers with number 121303.

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Length: 39 pages
Date of creation: Mar 2012
Date of revision:
Handle: RePEc:irv:wpaper:121303

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Related research

Keywords: Fair wages; Unemployment; Overhiring effect; offshoring;

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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. Gabriel J. Felbermayr & Mario Larch & Wolfgang Lechthaler, 2009. "Unemployment in an Interdependent World," CESifo Working Paper Series 2788, CESifo Group Munich.
  3. Felbermayr, Gabriel & Prat, Julien & Schmerer, Hans-Jörg, 2011. "Globalization and labor market outcomes: Wage bargaining, search frictions, and firm heterogeneity," Journal of Economic Theory, Elsevier, vol. 146(1), pages 39-73, January.
  4. Elhanan Helpman & Oleg Itskhoki, 2007. "Labor Market Rigidities, Trade and Unemployment," NBER Working Papers 13365, National Bureau of Economic Research, Inc.
  5. Cahuc, Pierre & Marque, François & Wasmer, Etienne, 2004. "A Theory of Wages and Labour Demand with Intra-firm Bargaining and Matching Frictions," CEPR Discussion Papers 4605, C.E.P.R. Discussion Papers.
  6. Hartmut Egger & Udo Kreickemeier, 2009. "Firm Heterogeneity And The Labor Market Effects Of Trade Liberalization," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(1), pages 187-216, 02.
  7. Douglas Nelson, 1989. "The Political Economy Of Trade Policy," Economics and Politics, Wiley Blackwell, vol. 1(3), pages 301-314, November.
  8. Elhanan Helpman & Oleg Itskhoki & Stephen Redding, 2008. "Inequality and Unemployment in a Global Economy," NBER Working Papers 14478, National Bureau of Economic Research, Inc.
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Blog mentions

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  1. Fairness, Search Frictions, and Offshoring
    by Christian Zimmermann in NEP-DGE blog on 2012-07-24 15:07:33

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