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Wage stickiness, offshoring and unemployment

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  • Aloi, Marta
  • Hoefele, Andreas

Abstract

This note investigates how the effect of offshoring on unemployment is influenced by the wage setting process. We assume staggered wage contracts in an otherwise standard search and matching model. In this setup, the contract wage depends also on expected future conditions. We show that more flexibility in the wage contracting process induces greater offshoring, a decrease in the worker’s job-finding probability and higher worker’s wage within job spells. Notably, less stickiness leads to a fall in the rents that firms can extract by producing domestically.

Suggested Citation

  • Aloi, Marta & Hoefele, Andreas, 2019. "Wage stickiness, offshoring and unemployment," Economics Letters, Elsevier, vol. 177(C), pages 56-59.
  • Handle: RePEc:eee:ecolet:v:177:y:2019:i:c:p:56-59
    DOI: 10.1016/j.econlet.2019.01.025
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    References listed on IDEAS

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    1. Elhanan Helpman & Oleg Itskhoki, 2010. "Labour Market Rigidities, Trade and Unemployment," Review of Economic Studies, Oxford University Press, vol. 77(3), pages 1100-1137.
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    3. Gottfries, A., 2017. "Bargaining with renegotiation in models with on-the-job search," Cambridge Working Papers in Economics 1725, Faculty of Economics, University of Cambridge.
    4. Hervé Le Bihan & Jérémi Montornès & Thomas Heckel, 2012. "Sticky Wages: Evidence from Quarterly Microeconomic Data," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(3), pages 1-32, July.
    5. Mitra, Devashish & Ranjan, Priya, 2010. "Offshoring and unemployment: The role of search frictions labor mobility," Journal of International Economics, Elsevier, vol. 81(2), pages 219-229, July.
    6. Rogerson, Richard & Shimer, Robert, 2011. "Search in Macroeconomic Models of the Labor Market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 7, pages Pages: 61, Elsevier.
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    More about this item

    Keywords

    Offshoring; Unemployment; Wage stickiness;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • F66 - International Economics - - Economic Impacts of Globalization - - - Labor
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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