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Low-skill offshoring and welfare compensation policies

Listed author(s):
  • Agnese, Pablo
  • Hromcová, Jana

We analyze the effects of low-skill offshoring on welfare. In the context of a matching model with different possible equilibria we discuss three alternative policies that could potentially outweigh the negative welfare effects of offshoring, namely, a change of the unemployment benefits, labor market flexibility, and a progressive tax structure. Our calibrations for the German economy suggest that increased flexibility can bring low-skill workers to pre-offshoring welfare levels, something that cannot be accomplished by meddling with the unemployment benefits scheme or a more progressive tax structure. In addition, we find that a full compensation can be achieved by an upgrading of low-skill workers, its size depending on the type of equilibrium involved. In sum, our analysis gives support to labor market flexibility and upgrading by education as best therapies for offshoring.

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File URL: http://www.sciencedirect.com/science/article/pii/S0264999315002692
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Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 52 (2016)
Issue (Month): PB ()
Pages: 408-426

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Handle: RePEc:eee:ecmode:v:52:y:2016:i:pb:p:408-426
DOI: 10.1016/j.econmod.2015.09.022
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30411

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