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A North-South Trade Model of Offshoring and Unemployment

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  • Lutz Arnold

  • Stefanie Trepl

Abstract

This paper analyzes a North-South trade model with offshoring and unemployment due to union wage setting. A reduction in the cost of offshoring decreases employment in the North except possibly if there is little offshoring initially. If the scale of Northern firms also falls, then each Northern agent’s welfare declines. Unions have an incentive to reduce their own bargaining power by strategically delegating wage negotiation so as to cushion the negative employment effects. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • 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.
    • Handle: RePEc:kap:openec:v:26:y:2015:i:5:p:999-1039
    DOI: 10.1007/s11079-015-9359-7
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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J59 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Other

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