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A Sorted Tale of Globalization: White Collar Jobs and the Rise of Service Offshoring

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  • Runjuan Liu
  • Daniel Trefler

Abstract

We study how the rise of trade in services with China and India has impacted U.S. labour markets. The topic has two understudied aspects: it deals with service trade (most studies deal with manufacturing trade) and it examines the historical first of U.S. workers competing with educated but low-wage foreign workers. Our empirical agenda is made complicated by the endogeneity of service imports and the endogenous sorting of workers across occupations. To develop an estimation framework that deals with these, we imbed a partial equilibrium model of ‘trade in tasks’ within a general equilibrium model of occupational choice. The model highlights the need to estimate labour market outcomes using changes in the outcomes of individual workers and, in particular, to distinguish workers who switch ‘up’ from those who switch ‘down’. (Switching ‘down’ means switching to an occupation that pays less on average than the current occupation). We apply these insights to matched CPS data for 1996-2007. The cumulative 10-year impact of rising service imports from China and India has been as follows. (1) Downward and upward occupational switching increased by 17% and 4%, respectively. (2) Transitions to unemployment increased by a large 0.9 percentage points. (3) The earnings of occupational ‘stayers’ fell by a tiny 2.3%. (4) The earnings impact for occupational switchers is not identified without an assumption about worker sorting. Under the assumption of no worker sorting, downward (upward) switching was associated with an earning change of -13.9% (+12.1%). Under the assumption of worker sorting, there is no statistically significant impact on earnings.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17559.

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Date of creation: Nov 2011
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Handle: RePEc:nbr:nberwo:17559

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References

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  1. Davidson, Carl & Martin, Lawrence & Matusz, Steven, 1999. "Trade and search generated unemployment," Journal of International Economics, Elsevier, Elsevier, vol. 48(2), pages 271-299, August.
  2. Alan S. Blinder & Alan B. Krueger, 2009. "Alternative Measures of Offshorability: A Survey Approach," Working Papers, Princeton University, Department of Economics, Center for Economic Policy Studies. 1169, Princeton University, Department of Economics, Center for Economic Policy Studies..
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  7. Oecd, 2005. "Potential Offshoring of ICT-intensive Using Occupations," OECD Digital Economy Papers, OECD Publishing 91, OECD Publishing.
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  15. Chiara Criscuolo & Luis Garicano, 2010. "Offshoring and Wage Inequality: Using Occupational Licensing as a Shifter of Offshoring Costs," American Economic Review, American Economic Association, American Economic Association, vol. 100(2), pages 439-43, May.
  16. Runjuan Liu & Daniel Trefler, 2008. "Much Ado About Nothing: American Jobs and the Rise of Service Outsourcing to China and India," NBER Working Papers 14061, National Bureau of Economic Research, Inc.
  17. Davidson, Carl & Heyman, Fredrik & Matusz, Steven & Sjöholm, Fredrik & Chun Zhu, Susan, 2010. "Globalization and Imperfect Labor Market Sorting," Working Paper Series, Research Institute of Industrial Economics 856, Research Institute of Industrial Economics.
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Citations

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Cited by:
  1. Davidson, Carl & Heyman, Fredrik & Matusz, Steven & Sjöholm, Fredrik & Zhu, Susan Chun, 2014. "Global Engagement and the Occupational Structure of Firms," Working Papers, Lund University, Department of Economics 2014:22, Lund University, Department of Economics.
  2. Artuc, Erhan & McLaren, John, 2012. "Trade policy and wage inequality : a structural analysis with occupational and sectoral mobility," Policy Research Working Paper Series 6194, The World Bank.
  3. Melitz, Marc J. & Trefler, Daniel, 2012. "Gains from Trade When Firms Matter," Scholarly Articles 10914282, Harvard University Department of Economics.
  4. Ejaz Ghani & William R. Kerr & Christopher T. Stanton, 2012. "Diasporas and Outsourcing: Evidence from oDesk and India," NBER Working Papers 18474, National Bureau of Economic Research, Inc.
  5. Sethupathy, Guru, 2013. "Offshoring, wages, and employment: Theory and evidence," European Economic Review, Elsevier, Elsevier, vol. 62(C), pages 73-97.
  6. Semih Akcomak & Henri de Groot & Stefan Groot, 2013. "The impact of trade, offshoring and multinationals on job loss and job finding," CPB Discussion Paper 252, CPB Netherlands Bureau for Economic Policy Analysis.
  7. Jonathan Haskel & Robert Z. Lawrence & Edward E. Leamer & Matthew J. Slaughter, 2012. "Globalization and U.S. Wages: Modifying Classic Theory to Explain Recent Facts," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 26(2), pages 119-40, Spring.
  8. Basco, Sergi & Mestieri, Martí, 2013. "Heterogeneous trade costs and wage inequality: A model of two globalizations," Journal of International Economics, Elsevier, Elsevier, vol. 89(2), pages 393-406.

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