Training, Offshoring, and the Job Ladder

Over the past 40 years, labor market conditions in the United States and elsewhere have rapidly evolved. Skill premiums have grown, jobs in the middle of the skill distribution have become relatively scarce, and job and worker turnover rates have declined. At the same time, the fraction of the population attending college has grown, much of the manufacturing work force has shifted into services, and on-the-job training times have increased for high-skill workers. This paper interprets these patterns through the lens of a dynamic structural model that explains workers' human capital accumulation and earnings trajectories over their life cycles. The basic idea is as follows. Before entering the labor market, high school graduates who differ in their ability (human capital) levels decide whether to attend college. After their schooling decisions, skilled (college educated) and unskilled workers enter into the labor market and match with firms that produce different tasks. Firms that produce the same task differ in their idiosyncratic productivity levels. Once employed, workers build human capital through experience, and may also invest in on-the-job training. Both types of human capital accumulation induce wage growth over their life cycles, and this growth is augmented by the arrival of job offers from "poaching" employers, which force firms to compete for their services. But their wages fall if product market shocks throw them into unemployment, interrupting their human capital accumulation and reducing their bargaining power with potential new employers. Tasks, which are produced by one worker-one pair firms are demanded by firms that produce differentiated consumption goods. Consumption good producers can obtain different tasks they need for production from domestic or foreign markets. Tasks differ extent to which they can be obtained from foreign markets. Offshoring, and import competition affect workers' careers through all of these mechanisms. While improving productive efficiency, these shocks destroy jobs in the trade-exposed occupations, change job offer arrival rates for each worker type, and change incentives to invest in college degrees. Also, by reducing the relative demand for mid-skill occupations, they affect workers' incentives to invest in on-the-job training.