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Offshoring, wages and the growing skill gap: Advocating offshoring without sectoral reallocation

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  • Bakhtiari, Sasan

Abstract

Using a general equilibrium model with heterogeneous firms, where production requires both low and high skills and workers are immobile across sectors and skills, it is found that the endogenous shifts in aggregate productivity and the reallocation of workers among the mix of integrated and offshoring firms can increase the unskilled real wage. Simulations show that offshoring 0.5% of unskilled jobs, the extent of offshoring around 2002, could have actually spelled about 0.3% rise in the unskilled real wage. However, offshoring contributes to a skill gap that widens with the lowering of offshoring costs.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:reveco:v:23:y:2012:i:c:p:46-58
    DOI: 10.1016/j.iref.2011.10.005
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    References listed on IDEAS

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    Cited by:

    1. Barua, Alokesh & Pant, Manoj, 2014. "Trade and wage inequality: A specific factor model with intermediate goods," International Review of Economics & Finance, Elsevier, vol. 33(C), pages 172-185.
    2. Hamid Beladi & Reza Oladi, 2014. "On Offshoring and Trade Deficit," Review of Development Economics, Wiley Blackwell, vol. 18(3), pages 517-523, August.
    3. 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.
    4. Sun, Sizhong & Anwar, Sajid, 2015. "Taxation of labour, product varieties and skilled–unskilled wage inequality: Short run versus long run," International Review of Economics & Finance, Elsevier, vol. 38(C), pages 250-257.
    5. Anwar, Sajid & Sun, Sizhong, 2015. "Taxation of labour income and the skilled–unskilled wage inequality," Economic Modelling, Elsevier, vol. 47(C), pages 18-22.
    6. Pi, Jiancai & Zhou, Yu, 2013. "Institutional quality and skilled–unskilled wage inequality," Economic Modelling, Elsevier, vol. 35(C), pages 356-363.
    7. Pi, Jiancai & Zhou, Yu, 2012. "Public infrastructure provision and skilled–unskilled wage inequality in developing countries," Labour Economics, Elsevier, vol. 19(6), pages 881-887.

    More about this item

    Keywords

    Inequality; Offshoring; Productivity; Skill gap; Wage;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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