A Structural Estimation of the Employment Effects of Offshoring in the U.S. Labor Market

In this paper, we generalize the Grossman and Rossi-Hansberg (2008) offshoring model to include numerous tasks/skill levels and then empirically investigate the effect of offshoirng on occupational employment for ten major occupational groups (at 2-digit SOC level) in the U.S. labor market using the CPSMORG (Current Population Survey Merged Outgoing Rotation Groups) data from year 1983 to 2011. We first use the non-parametric monotonic cubic spline interpolation method to approximate offshoring cost functions. Results show that among the ten occupational groups, those involved with more impersonal and/or routine tasks have relatively lower offshoring costs in comparison to groups involved in more personal and/or non-routine manual tasks. Based on estimated offshoring costs, we then focus our analysis on five relatively more offshorable occupational groups to further calculate the number of jobs offshored as well as the offshoring percentage by occupation over the sample period. Results indicate: i) production occupations are most offshorable among all five offshorable occupational groups; ii) the offshoring percentage for production occupations has been increasing over time; and iii) offshoring percentages for professional occupations, management, business, and financial operations occupations have been decreasing over time.