The Trouble with Offshoring: Static and Dynamic Losses in the Presence of Unemployment
This paper provides theoretical support for the popular objection to offshoring, whereby firms at home employ services of labor located abroad. In the presence of unemployment, our analysis highlights welfare losses from offshoring—not only for the static case of a fixed stock of capital, but also for the dynamic one of optimal saving and investment. We compare these static and dynamic losses to the gains that would instead arise under full-employment conditions, assumed by most of the theoretical literature on offshoring. Our results suggest that public concerns over offshoring are justified when unemployment is taken explicitly into account.
|Date of creation:||Mar 2011|
|Date of revision:||Jan 2013|
|Publication status:||Published: The Trouble with Offshoring: Static and Dynamic Losses in the Presence of Unemployment – revised version in The World Economy, Vol. 36, No. 5 (January 2013), pp. 1-11|
|Contact details of provider:|| Postal: C870 Loeb Building, 1125 Colonel By Drive, Ottawa Ontario, K1S 5B6 Canada|
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- Davidson, Carl & Matusz, Steven J. & Shevchenko, Andrei, 2008. "Outsourcing Peter To Pay Paul: High-Skill Expectations And Low-Skill Wages With Imperfect Labor Markets," Macroeconomic Dynamics, Cambridge University Press, vol. 12(04), pages 463-479, September.
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- Richard Brecher & Zhiqi Chen, 2008.
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Carleton Economic Papers
08-07, Carleton University, Department of Economics, revised Nov 2010.
- Richard A. Brecher & Zhiqi Chen, 2010. "Unemployment of Skilled and Unskilled Labor in an Open Economy: International Trade, Migration, and Outsourcing," Review of International Economics, Wiley Blackwell, vol. 18(5), pages 990-1000, November.
- Mitra, Devashish & Ranjan, Priya, 2007.
"Offshoring and Unemployment,"
IZA Discussion Papers
2805, Institute for the Study of Labor (IZA).
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