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Low-skill offshoring and welfare compensation policies


  • 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.

Suggested Citation

  • Agnese, Pablo & Hromcová, Jana, 2016. "Low-skill offshoring and welfare compensation policies," Economic Modelling, Elsevier, vol. 52(PB), pages 408-426.
  • Handle: RePEc:eee:ecmode:v:52:y:2016:i:pb:p:408-426 DOI: 10.1016/j.econmod.2015.09.022

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    References listed on IDEAS

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    Cited by:

    1. Agnese, Pablo & Hromcová, Jana, 2016. "Offshoring, Endogenous Skill Decision, and Labor Market Outcomes," IZA Discussion Papers 10299, Institute for the Study of Labor (IZA).

    More about this item


    Offshoring; Welfare; Unemployment benefits; Labor market flexibility; Upgrading;

    JEL classification:

    • F66 - International Economics - - Economic Impacts of Globalization - - - Labor
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy


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