Trade, offshoring, and the invisible handshake
We study the effect of globalization on the volatility of wages and worker welfare in a model in which risk is allocated through long-run employment relationships (the 'invisible handshake'). Globalization can take two forms: international integration of commodity markets (i.e., free trade) and international integration of factor markets (i.e., offshoring). In a two-country, two-good, two-factor model we show that free trade and offshoring have opposite effects on rich-country workers. Free trade hurts rich-country workers, while reducing the volatility of their wages; by contrast, offshoring benefits them, while raising the volatility of their wages. We thus formalize, but also sharply circumscribe, a common critique of globalization.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- James Ted McDonald & Christopher Worswick, 1999.
"Wages, Implicit Contracts, and the Business Cycle: Evidence from Canadian Micro Data,"
Journal of Political Economy,
University of Chicago Press, vol. 107(4), pages 884-913, August.
- McDonald, J.T. & Worswick, C., 1997. "Wages, Implicit Contracts and the Business Cycle: Evidence from Canadian Micro Data," Department of Economics - Working Papers Series 588, The University of Melbourne.
- Gene M. Grossman & Esteban Rossi-Hansberg, 2008.
"Trading Tasks: A Simple Theory of Offshoring,"
American Economic Review,
American Economic Association, vol. 98(5), pages 1978-97, December.
- W. Bentley MacLeod & James M. Malcomson, 1986.
"Implicit Contracts, Incentive Compatibility, and Involuntary Unemployment,"
585, Queen's University, Department of Economics.
- MacLeod, W Bentley & Malcomson, James M, 1989. "Implicit Contracts, Incentive Compatibility, and Involuntary Unemployment," Econometrica, Econometric Society, vol. 57(2), pages 447-80, March.
- Barbara J. Spencer, 2005.
"International Outsourcing and Incomplete Contracts,"
NBER Working Papers
11418, National Bureau of Economic Research, Inc.
- Barbara Spencer, 2005. "International outsourcing and incomplete contracts," Canadian Journal of Economics, Canadian Economics Association, vol. 38(4), pages 1107-1135, November.
- Devashish Mitra & Priya Ranjan, 2007.
"Offshoring and Unemployment,"
NBER Working Papers
13149, National Bureau of Economic Research, Inc.
- Daniel A. Traca, 2005.
"Globalization, Wage Volatility, and the Welfare of Workers,"
Review of International Economics,
Wiley Blackwell, vol. 13(2), pages 237-249, 05.
- Daniel Traca, 2005. "Globalization, wage volatility and the welfare of workers," ULB Institutional Repository 2013/9227, ULB -- Universite Libre de Bruxelles.
- Mary Amiti & Shang-Jin Wei, 2006. "Service Offshoring and Productivity: Evidence from the United States," NBER Working Papers 11926, National Bureau of Economic Research, Inc.
- Esteban Rossi-Hansberg & Pol Antras & Luis Garicano, 2005.
"Offshoring in a Knowledge Economy,"
2005 Meeting Papers
196, Society for Economic Dynamics.
- Rossi-Hansberg, Esteban & Garicano, Luis & Antras, Pol, 2006. "Offshoring in a Knowledge Economy," Scholarly Articles 3196323, Harvard University Department of Economics.
- Pol Antràs & Luis Garicano & Esteban Rossi-Hansberg, 2005. "Offshoring in a Knowledge Economy," Discussion Papers 04-020, Stanford Institute for Economic Policy Research.
- Pol Antras & Luis Garicano & Esteban Rossi-Hansberg, 2005. "Offshoring in a Knowledge Economy," Harvard Institute of Economic Research Working Papers 2067, Harvard - Institute of Economic Research.
- Pol Antràs & Luis Garicano & Esteban Rossi-Hansberg, 2005. "Offshoring in a Knowledge Economy," NBER Working Papers 11094, National Bureau of Economic Research, Inc.
- Gene M. Grossman & Elhanan Helpman, 2002.
"Outsourcing in a Global Economy,"
NBER Working Papers
8728, National Bureau of Economic Research, Inc.
- Grossman, G.M. & Helpman, E., 2002. "Outsourcing in a Global Economy," Papers 218, Princeton, Woodrow Wilson School - Public and International Affairs.
- Gene M. Grossman & Elhanan Helpman, 2002. "Outsourcing in a Global Economy?," Harvard Institute of Economic Research Working Papers 1966, Harvard - Institute of Economic Research.
- Gene M. Grossman & Elhanan Helpman, 2002. "Outsourcing in a Global Economy," Working Papers 149, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics..
- Grossman, Gene & Helpman, Elhanan, 2002. "Outsourcing in a Global Economy," CEPR Discussion Papers 3165, C.E.P.R. Discussion Papers.
- Andrei Shleifer & Lawrence H. Summers, 1987.
"Breach of Trust in Hostile Takeovers,"
NBER Working Papers
2342, National Bureau of Economic Research, Inc.
- Mary Amiti & Shang-Jin Wei, 2005.
"Fear of service outsourcing: is it justified?,"
CEPR;CES;MSH, vol. 20(42), pages 308-347, 04.
- Ramey Garey & Watson Joel, 2001. "Bilateral Trade and Opportunism in a Matching Market," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 1(1), pages 1-35, November.
- Valletta, Robert G, 1999.
"Declining Job Security,"
Journal of Labor Economics,
University of Chicago Press, vol. 17(4), pages S170-97, October.
- Catherine L. Mann, 2003. "Globalization of IT Services and White Collar Jobs: The Next Wave of Productivity Growth," Policy Briefs PB03-11, Peterson Institute for International Economics.
- Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-84, December.
- Marianne Bertrand, 1999.
"From the Invisible Handshake to the Invisible Hand? How Import Competition Changes the Employment Relationship,"
NBER Working Papers
6900, National Bureau of Economic Research, Inc.
- Marianne Bertrand, 2004. "From the Invisible Handshake to the Invisible Hand? How Import Competition Changes the Employment Relationship," Journal of Labor Economics, University of Chicago Press, vol. 22(4), pages 723-766, October.
- Malcomson, James M., 1999.
"Individual employment contracts,"
Handbook of Labor Economics,
in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 35, pages 2291-2372
- Malcomson, J., 1998. "Individual employment contracts," Discussion Paper Series In Economics And Econometrics 9804, Economics Division, School of Social Sciences, University of Southampton.
- Peter Gottschalk & Robert Moffitt, 1994. "The Growth of Earnings Instability in the U.S. Labor Market," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(2), pages 217-272.
- Matusz, Steven J, 1985. "The Heckscher-Ohlin-Samuelson Model with Implicit Contracts," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1313-29, November.
- Narayana Kocherlakota, 2010.
"Implications of Efficient Risk Sharing Without Commitment,"
Levine's Working Paper Archive
2053, David K. Levine.
- Kocherlakota, Narayana R, 1996. "Implications of Efficient Risk Sharing without Commitment," Review of Economic Studies, Wiley Blackwell, vol. 63(4), pages 595-609, October.
- repec:hrv:faseco:4784031 is not listed on IDEAS
- Thomas, Jonathan & Worrall, Tim, 1988. "Self-enforcing Wage Contracts," Review of Economic Studies, Wiley Blackwell, vol. 55(4), pages 541-54, October.
- Matusz, Steven J, 1986. "Implicit Contracts, Unemployment and International Trade," Economic Journal, Royal Economic Society, vol. 96(382), pages 307-22, June.
When requesting a correction, please mention this item's handle: RePEc:eee:inecon:v:82:y:2010:i:1:p:26-34. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.