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Offshoring and unemployment: The role of search frictions labor mobility

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  • Mitra, Devashish
  • Ranjan, Priya

Abstract

In a two-sector, general-equilibrium model with labor-market search frictions, we find that the wage increases and sectoral unemployment decreases upon offshoring in the presence of perfect intersectoral labor mobility. If, as a result, labor moves to the sector with the lower (or equal) vacancy costs, there is an unambiguous decrease in economywide unemployment. With imperfect intersectoral labor mobility, unemployment in the offshoring sector can rise, with an unambiguous unemployment reduction in the non-offshoring sector. Imperfect labor mobility can result in a mixed equilibrium in which only some firms offshore, with unemployment in the offshoring sector rising.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:inecon:v:81:y:2010:i:2:p:219-229
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Vrh, Nataša, 2015. "Pay-off to Participation in Global Value Chains: How Much are New EU Member States Lagging behind the Rest of EU Countries in Terms of Domestic Value Added in Exports?," MPRA Paper 67805, University Library of Munich, Germany.
    2. Chella, Namapsa & Phiri, Andrew, 2017. "Long-run cointegration between foreign direct investment, direct investment and unemployment in South Africa," MPRA Paper 82371, University Library of Munich, Germany.
    3. Lo Turco, Alessia & Maggioni, Daniela & Picchio, Matteo, 2013. "Offshoring and job stability: Evidence from Italian manufacturing," Structural Change and Economic Dynamics, Elsevier, vol. 26(C), pages 27-46.
    4. Ranjan, Priya, 2012. "Trade liberalization, unemployment, and inequality with endogenous job destruction," International Review of Economics & Finance, Elsevier, vol. 23(C), pages 16-29.
    5. Hummels, David & Munch, Jakob R. & Xiang, Chong, 2016. "Offshoring and Labor Markets," IZA Discussion Papers 9741, Institute for the Study of Labor (IZA).
    6. repec:kap:iecepo:v:14:y:2017:i:2:d:10.1007_s10368-016-0371-1 is not listed on IDEAS
    7. Seok, Jun Ho & Saghaian, Sayed H., 2016. "The Impact of Service Offshoring on Agriculture and Food Sector Productivity Using the World Input-Output Table," 2016 Annual Meeting, February 6-9, 2016, San Antonio, Texas 229704, Southern Agricultural Economics Association.
    8. Andrea F. Presbitero & Matteo G. Richiardi & Alessia A. Amighini, 2015. "Is labor flexibility a substitute to offshoring? Evidence from Italian manufacturing," International Economics, CEPII research center, issue 142, pages 81-93.
    9. Schwörer, Tillmann, 2012. "Offshoring, domestic outsourcing, and productivity: Evidence for a number of European countries," Kiel Working Papers 1786, Kiel Institute for the World Economy (IfW).
    10. Jung, Jaewon & Mercenier, Jean, 2014. "On modeling task, skill and technology upgrading effects of globalization with heterogeneous labor," Economic Modelling, Elsevier, vol. 39(C), pages 49-62.
    11. Schmerer, Hans-Jörg, 2014. "Foreign direct investment and search unemployment: Theory and evidence," International Review of Economics & Finance, Elsevier, vol. 30(C), pages 41-56.
    12. Schmerer, Hans-Jörg, 2012. "Skill-biased labor market reforms and international competitiveness," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 6, pages 1-39.
    13. Groizard, Jose L. & Ranjan, Priya & Rodriguez-Lopez, Antonio, 2014. "Offshoring and jobs: The myriad channels of influence," European Economic Review, Elsevier, vol. 72(C), pages 221-239.
    14. Tillmann Schwörer, 2013. "Offshoring, domestic outsourcing and productivity: evidence for a number of European countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 149(1), pages 131-149, March.
    15. Hasan, Rana & Mitra, Devashish & Ranjan, Priya & Ahsan, Reshad N., 2012. "Trade liberalization and unemployment: Theory and evidence from India," Journal of Development Economics, Elsevier, vol. 97(2), pages 269-280.
    16. Ranjan, Priya, 2013. "Offshoring, unemployment, and wages: The role of labor market institutions," Journal of International Economics, Elsevier, vol. 89(1), pages 172-186.
    17. Bo Chen & Yao Li & Yuming Yin, 2016. "FDI, Industry Heterogeneity and Employment Elasticity in China," Review of Development Economics, Wiley Blackwell, vol. 20(1), pages 189-200, February.
    18. Wilhelm Kohler & Jens Wrona, 2010. "Offshoring Tasks, yet Creating Jobs?," CESifo Working Paper Series 3019, CESifo Group Munich.
    19. Lutz Arnold & Stefanie Trepl, 2015. "A North-South Trade Model of Offshoring and Unemployment," Open Economies Review, Springer, vol. 26(5), pages 999-1039, November.
    20. Artuç, Erhan & McLaren, John, 2015. "Trade policy and wage inequality: A structural analysis with occupational and sectoral mobility," Journal of International Economics, Elsevier, vol. 97(2), pages 278-294.
    21. Ken-ichi Hashimoto, 2015. "Tariffs, Offshoring and Unemployment in A Two-Country Model," The Japanese Economic Review, Japanese Economic Association, vol. 66(3), pages 371-392, September.
    22. Kim, Dongwoo & Koedel, Cory & Ni, Shawn & Podgursky, Michael, 2017. "Labor market frictions and production efficiency in public schools," Economics of Education Review, Elsevier, vol. 60(C), pages 54-67.
    23. Mazumder, Debojyoti, 2013. "Inheritance, Search Friction and International Trade: A General Equilibrium Model," MPRA Paper 55250, University Library of Munich, Germany.
    24. Bulent Unel, 2016. "Offshoring and Unemployment in a Credit-Constrained Economy," Departmental Working Papers 2016-03, Department of Economics, Louisiana State University.
    25. Bakhtiari, Sasan, 2012. "Offshoring, wages and the growing skill gap: Advocating offshoring without sectoral reallocation," International Review of Economics & Finance, Elsevier, vol. 23(C), pages 46-58.

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