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The Trouble with Offshoring: Static and Dynamic Losses in the Presence of Unemployment

Author

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  • Richard A. Brecher
  • Zhiqi Chen
  • Zhihao Yu

Abstract

This paper provides theoretical support for the popular objection to offshoring, whereby firms at home employ services of labor located abroad. In the presence of unemployment, our analysis highlights welfare losses from offshoring—not only for the static case of a fixed stock of capital, but also for the dynamic one of optimal saving and investment. We compare these static and dynamic losses to the gains that would instead arise under full-employment conditions, assumed by most of the theoretical literature on offshoring. Our results suggest that public concerns over offshoring are justified when unemployment is taken explicitly into account.
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Suggested Citation

  • Richard A. Brecher & Zhiqi Chen & Zhihao Yu, 2013. "The Trouble with Offshoring: Static and Dynamic Losses in the Presence of Unemployment," The World Economy, Wiley Blackwell, vol. 36(1), pages 1-11, January.
    • Handle: RePEc:bla:worlde:v:36:y:2013:i:1:p:1-11
    DOI: twec.12015
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    Cited by:

    1. Haiwen Zhou, 2020. "Monitoring Intensity and Technology Choice in a Model of Unemployment," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 46(3), pages 504-520, June.
    2. Richard A. Brecher & Zhiqi Chen, 2014. "Unemployment and welfare consequences of international outsourcing under monopolistic competition," Canadian Journal of Economics, Canadian Economics Association, vol. 47(2), pages 540-554, May.
    3. Haiwen Zhou, 2018. "Impact of international trade on unemployment under oligopoly," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 27(4), pages 365-379, May.
    4. Chen, Qifei & Shen, Yanzhi, 2021. "The impacts of offshore and onshore outsourcing on China's upgrading in global value chains: Evidence from its manufacturing and service sectors," Structural Change and Economic Dynamics, Elsevier, vol. 59(C), pages 263-280.
    5. Lei Wen & Haiwen Zhou, 2020. "Technology Choice, Financial Sector and Economic Integration Under the Presence of Efficiency Wages," Open Economies Review, Springer, vol. 31(1), pages 95-112, February.
    6. Richard A. Brecher & Till Gross, 2020. "Unemployment and income‐distribution effects of economic growth: A minimum‐wage analysis with optimal saving," International Journal of Economic Theory, The International Society for Economic Theory, vol. 16(3), pages 243-259, September.
    7. Richard A. Brecher & Till Gross, 2019. "A minimum‐wage model of unemployment and growth: The case of a backward‐bending demand curve for labor," International Journal of Economic Theory, The International Society for Economic Theory, vol. 15(3), pages 297-309, September.

    More about this item

    JEL classification:

    • F20 - International Economics - - International Factor Movements and International Business - - - General

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