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Foreign Investment, Outsourcing and Relative Wages

  • Feenstra, R.C.
  • Hanson, G.H.

In this paper we examine the reduction in the relative employment and wages of unskilled workers in the U.S. during the 1980's. We argue that a contributing factor to this decline was rising imports reflecting the outsourcing of production activities. In a theoretical model, we show that any increase in the Southern capital stock relative to that of the North, or neutral technological progress in the South, will increase the relative wage of skilled workers in both countries due to a shift in production activities to the South. Corresponding to this change in the relative wage is an increase in the price index of Northern activities within each industry, relative to that of the South. We confirm that this change in relative prices occurred for the U.S. and other industrialized countries relative to their trading partners. We also estimate that 15-33% of the increase in the relative wage of nonproduction (or skilled) workers in the U.S. during the 1980's is explained by rising imports.

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Paper provided by California Davis - Department of Economics in its series Department of Economics with number 95-14.

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Length: 44 pages
Date of creation: 1995
Date of revision:
Handle: RePEc:fth:caldec:95-14
Contact details of provider: Postal: University of California Davis - Department of Economics. One Shields Ave., California 95616-8578
Phone: (530) 752-0741
Fax: (530) 752-9382
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  1. Edward E. Leamer, 1994. "Trade, Wages and Revolving Door Ideas," NBER Working Papers 4716, National Bureau of Economic Research, Inc.
  2. repec:tpr:qjecon:v:113:y:1998:i:4:p:1245-1279 is not listed on IDEAS
  3. Eli Berman & John Bound & Stephen Machin, 1997. "Implications of Skill-Biased Technological Change: International Evidence," Boston University - Institute for Economic Development 78, Boston University, Institute for Economic Development.
  4. George J. Borjas & Richard B. Freeman & Lawrence F. Katz, 1991. "On the Labor Market Effects of Immigration and Trade," NBER Working Papers 3761, National Bureau of Economic Research, Inc.
  5. Bernard, A.B. & Jensen, J.B., 1994. "Exporters, Skill Upgrading, and the Wage Gap," Working papers 94-30, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Robert Z Lawrence, 1994. "Trade, Multinationals and Labour," RBA Annual Conference Volume, in: Philip Lowe & Jacqueline Dwyer (ed.), International Intergration of the Australian Economy Reserve Bank of Australia.
  7. Steven J. Davis, 1992. "Cross-Country Patterns of Change in Relative Wages," NBER Working Papers 4085, National Bureau of Economic Research, Inc.
  8. Robert C. Feenstra & Gordon H. Hanson, 1995. "Foreign Direct Investment and Relative Wages: Evidence from Mexico's Maquiladoras," NBER Working Papers 5122, National Bureau of Economic Research, Inc.
  9. Paul Krugman & Robert Lawrence, 1993. "Trade, Jobs, and Wages," NBER Working Papers 4478, National Bureau of Economic Research, Inc.
  10. Jeffrey D. Sachs & Howard J. Shatz, 1994. "Trade and Jobs in Manufacturing," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(1), pages 1-84.
  11. Jagdish Bhagwati, 1995. "Trade and wages: choosing among alternative explanations," Economic Policy Review, Federal Reserve Bank of New York, issue Jan, pages 42-47.
  12. repec:tpr:qjecon:v:109:y:1994:i:2:p:367-97 is not listed on IDEAS
  13. repec:aei:rpbook:52903 is not listed on IDEAS
  14. Eli Berman & John Bound & Zvi Griliches, 1993. "Changes in the Demand for Skilled Labor within U.S. Manufacturing Industries: Evidence from the Annual Survey of Manufacturing," NBER Working Papers 4255, National Bureau of Economic Research, Inc.
  15. John M. Abowd & Richard B. Freeman, 1991. "Immigration, Trade, and the Labor Market," NBER Books, National Bureau of Economic Research, Inc, number abow91-1, December.
  16. repec:tpr:qjecon:v:95:y:1980:i:2:p:203-24 is not listed on IDEAS
  17. Edward E. Leamer, 1992. "Wage Effects of A U.S. - Mexican Free Trade Agreement," NBER Working Papers 3991, National Bureau of Economic Research, Inc.
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