Offshoring and Unemployment: The Role of Search Frictions and Labor Mobility
AbstractIn a two-sector, general-equilibrium model with labor-market search frictions, we find that wage increases and sectoral unemployment decreases upon offshoring in the presence of perfect intersectoral labor mobility. If, as a result, labor moves to the sector with the lower (or equal) vacancy costs, there is an unambiguous decrease in economywide unemployment. With imperfect intersectoral labor mobility, unemployment in the offshoring sector can rise, with an unambiguous unemployment reduction in the non-offshoring sector. Imperfect labor mobility can result in a mixed equilibrium in which only some firms in the industry offshore, with unemployment in this sector rising.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4136.
Length: 36 pages
Date of creation: Apr 2009
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Find related papers by JEL classification:
- F11 - International Economics - - Trade - - - Neoclassical Models of Trade
- F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-05-16 (All new papers)
- NEP-DGE-2009-05-16 (Dynamic General Equilibrium)
- NEP-INT-2009-05-16 (International Trade)
- NEP-LAB-2009-05-16 (Labour Economics)
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