Managerial versus production wages: Offshoring, country size and endowments
AbstractWe explore the role of trade in differentiated final goods as well ollshoring of tasks for inequality both within and between countries. We emphasize the distinction between managerial and production labor. Managerial labor is a fixed input while production labor is a variable input. Following Grossman & Rossi-Hansberg (2010b) we assume that production labor is composed of tradable tasks, with Marshallian economies of scale on the task level. We first identify the key determinants of income distribution in a world where trade is restricted to final goods. We then allow for trade in production tasks, driven by country size as well as relative endowment with managerial and production labor. If the two countries are of equal size and if their relative endowments are not too different, then the task trading equilibrium features equalization of production wages, although the pattern of task trade and managerial wages are indeterminate. For differences in relative endowments beyond a certain threshold level, the trading equilibrium is unique and features one-way trade in line with comparative advantage. Relying on numerical simulations we show that international inequality is affected in a non-monotonic way by the cost of task trade. Comparing orders of magnitude we conclude that offshoring between similar countries only has a small positive effect on the managerial wage premium, compared to offshoring between countries with a different relative endowment. --
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Tuebingen, Faculty of Economics and Social Sciences in its series University of Tuebingen Working Papers in Economics and Finance with number 13.
Date of creation: 2011
Date of revision:
Offshoring; Economies of Scale; Income Distribution; International Inequality;
Other versions of this item:
- Sebastian Benz & Wilhelm Kohler, 2014. "Managerial versus Production Wages: Offshoring, Country Size, and Endowments," Canadian Journal of Economics, Canadian Economics Association, vol. 47(1), pages 250-271, February.
- Sebastian Benz & Wilhelm Kohler, 2010. "Managerial versus Production Wages: Offshoring, Country Size and Endowments," CESifo Working Paper Series 3292, CESifo Group Munich.
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-08-09 (All new papers)
- NEP-CMP-2011-08-09 (Computational Economics)
- NEP-INT-2011-08-09 (International Trade)
- NEP-LAB-2011-08-09 (Labour Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Egger, Hartmut & Kreickemeier, Udo, 2012.
"Fairness, trade, and inequality,"
Journal of International Economics,
Elsevier, vol. 86(2), pages 184-196.
- Epifani, Paolo & Gancia, Gino, 2002.
"The Skill Bias of World Trade,"
707, Stockholm University, Institute for International Economic Studies.
- Paolo Epifani & Gino Gancia, 2002. "The Skill Bias of World Trade," KITeS Working Papers 129, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised Mar 2001.
- Paolo Epifani & Gino Gancia, 2004. "The Skill Bias of World Trade," Working Papers 184, Barcelona Graduate School of Economics.
- Paolo Epifani & Gino Gancia, 2004. "The skill bias of world trade," Economics Working Papers 833, Department of Economics and Business, Universitat Pompeu Fabra, revised Mar 2007.
- Grossman, Gene M. & Rossi-Hansberg, Esteban, 2011.
"Task trade between similar countries,"
Policy Research Working Paper Series
5819, The World Bank.
- Pol Antras & Elhanan Helpman, 2003.
Harvard Institute of Economic Research Working Papers
2005, Harvard - Institute of Economic Research.
- Antras, Pol & Helpman, Elhanan, 2004. "Global Sourcing," Scholarly Articles 3196327, Harvard University Department of Economics.
- Pol Antràs & Elhanan Helpman, 2003. "Global Sourcing," NBER Working Papers 10082, National Bureau of Economic Research, Inc.
- Antràs, Pol & Helpman, Elhanan, 2004. "Global Sourcing," CEPR Discussion Papers 4170, C.E.P.R. Discussion Papers.
- Horn, Henrik, 1983. "Some implications of non-homotheticity in production in a two-sector general equilibrium model with monopolistic competition," Journal of International Economics, Elsevier, vol. 14(1-2), pages 85-101, February.
- Findlay, Ronald & Kierzkowski, Henryk, 1983. "International Trade and Human Capital: A Simple General Equilibrium Model," Journal of Political Economy, University of Chicago Press, vol. 91(6), pages 957-78, December.
- Manasse, Paolo & Turrini, Alessandro Antonio, 1999.
"Trade, Wages, and Superstars,"
CEPR Discussion Papers
2262, C.E.P.R. Discussion Papers.
- Paolo Manasse & Alessandro Turrini, . "Trade, Wages and "Superstars"," Working Papers 140, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Paolo Manasse & Alessandro Turrini, 1999. "Trade, Wages and ´Superstars’," Development Working Papers 127, Centro Studi Luca d\'Agliano, University of Milano.
- Zhu, Susan Chun & Trefler, Daniel, 2005. "Trade and inequality in developing countries: a general equilibrium analysis," Journal of International Economics, Elsevier, vol. 65(1), pages 21-48, January.
- Anas, Alex, 2001. "By Alex Anas. Forthcoming in Regional Science and Urban Economics. The Spatial Economy: Cities, Regions, and International Trade, Masahisa Fujita, Paul Krugman and Anthony J. Venables, MIT Press, Camb," Regional Science and Urban Economics, Elsevier, vol. 31(5), pages 601-615, September.
- Gene M. Grossman & Esteban Rossi-Hansberg, 2008.
"External Economies and International Trade Redux,"
NBER Working Papers
14425, National Bureau of Economic Research, Inc.
- Helpman, Elhanan & Antras, Pol, 2004. "Global Sourcing," Scholarly Articles 4784029, Harvard University Department of Economics.
- Udo Kreickemeier, 2009. "Trade, technology, and unemployment: the role of endogenous skill formation," Canadian Journal of Economics, Canadian Economics Association, vol. 42(2), pages 639-664, May.
- Eric J. Bartelsman & Wayne Gray, 1996. "The NBER Manufacturing Productivity Database," NBER Technical Working Papers 0205, National Bureau of Economic Research, Inc.
- Kiminori Matsuyama, 1990.
"Increasing Returns, Industrialization and Indeterminacy of Equilibrium,"
878, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Matsuyama, Kiminori, 1991. "Increasing Returns, Industrialization, and Indeterminacy of Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 617-50, May.
- Paul Krugman, 1995.
"Technology, Trade, and Factor Prices,"
NBER Working Papers
5355, National Bureau of Economic Research, Inc.
- Gene M. Grossman & Esteban Rossi-Hansberg, 2006.
"Trading Tasks: A Simple Theory of Offshoring,"
NBER Working Papers
12721, National Bureau of Economic Research, Inc.
- Wilhelm Kohler, 2004. "International outsourcing and factor prices with multistage production," Economic Journal, Royal Economic Society, vol. 114(494), pages C166-C185, 03.
- Sherwin Rosen, 1982. "Authority, Control, and the Distribution of Earnings," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 311-323, Autumn.
- Ethier, Wilfred, 1979. "Internationally decreasing costs and world trade," Journal of International Economics, Elsevier, vol. 9(1), pages 1-24, February.
- Masahisa Fujita & Paul Krugman & Anthony J. Venables, 2001. "The Spatial Economy: Cities, Regions, and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262561476, December.
- Choi, E. Kwan & Harrigan, James, 2003. "Handbook of International Trade," Staff General Research Papers 11375, Iowa State University, Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).
If references are entirely missing, you can add them using this form.