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Low-Skill Offshoring: Labor Market Policies and Welfare Effects
[Internationales Outsourcing von gering qualifizierter Arbeit: Arbeitsmarktpolitik und Wohlfahrtseffekte]

Listed author(s):
  • Agnese, Pablo

    ()

    (Department of Economics of the Duesseldorf University of Applied Sciences)

  • Hromcová, Jana

We analyze the effects of low-skill workers offshoring on the welfare of the economy. In the context of a matching model with different possible equilibria, we discuss two policies that could potentially outweigh the negative welfare effects of offshoring, namely, an increase of the unemployment benefits and the flexibilization of the labor market. Our results suggest that, while both policy instruments can theoretically bring the economy back to previous welfare levels, careful thought should be given to the practicability of either measure. In particular, it would take a major increase of the unemployment benefits but only a small reduction in the vacancy cost to compensate for the negative welfare effects of offshoring. In addition, we also find that the compensation can be achieved by an upgrading of the low-skill workers that varies with the equilibria.

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File URL: http://fhdd.opus.hbz-nrw.de/volltexte/2014/858/pdf/FHD_FB7_Ausgabe30.pdf
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Paper provided by Duesseldorf University of Applied Sciences in its series Duesseldorf Working Papers in Applied Management and Economics with number fobe30.

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Length: 29 pages
Date of creation: May 2014
Publication status: Published in Forschungsberichte des Fachbereichs Wirtschaft der Fachhochschule Duesseldorf, 2014,30 ; ISSN 1866-2722
Handle: RePEc:ddf:wpaper:fobe30
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  1. James Albrecht & Susan Vroman, 2002. "A Matching Model with Endogenous Skill Requirements," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(1), pages 283-305, February.
  2. Carl Davidson & Steven J. Matusz, 2006. "Trade Liberalization And Compensation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(3), pages 723-747, August.
  3. Elhanan Helpman & Oleg Itskhoki, 2010. "Labour Market Rigidities, Trade and Unemployment," Review of Economic Studies, Oxford University Press, vol. 77(3), pages 1100-1137.
  4. 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.
  5. Alexander Hijzen & Holger Görg & Robert C. Hine, 2005. "International Outsourcing and the Skill Structure of Labour Demand in the United Kingdom," Economic Journal, Royal Economic Society, vol. 115(506), pages 860-878, October.
  6. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 881-894, October.
  7. Jagdish Bhagwati & Arvind Panagariya, 2004. "The Muddles over Outsourcing," Journal of Economic Perspectives, American Economic Association, vol. 18(4), pages 93-114, Fall.
  8. Phelps, Edmund S, 1994. "Low-Wage Employment Subsidies versus the Welfare State," American Economic Review, American Economic Association, vol. 84(2), pages 54-58, May.
  9. Jung, Jaewon & Mercenier, Jean, 2014. "On modeling task, skill and technology upgrading effects of globalization with heterogeneous labor," Economic Modelling, Elsevier, vol. 39(C), pages 49-62.
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