A Simple Model of Trade, Job Task Offshoring and Social Insurance
We provide a simple model of trade, job task offshoring and social insurance to identify economic mechanisms through which the interplay between insurance design, (final-goods) trade and job task offshoring determine domestic producer conditions. A skill-abundant home country that may have more productive workers relocates low-skill job tasks to a labor-abundant foreign country. Only the home country provides social insurance to its citizens. Using a simple conceptualization of social insurance targeting the main mechanisms through which insurance design impacts on producer conditions, we formalize productivity, wage-restrictive, compensation, cost-enhancing, cost-redistributive and labor-supply effects of insurance. The home country’s labor productivity is superior if the health status of the labor force is improved by health insurance. Generous unemployment insurance trigger binding reservation wages, giving rise to labor-supply effects that lead to a domestic overspecialization of production in trade equilibrium. This tendency is stronger with an insurance design that incorporates a cost-coverage link. Offshoring can introduce, enhance or reduce unemployment in the unskilled labor market depending on a combination of market-related factors and insurance design. In particular, offshoring may give rise to a combination of market-related effects that offset unskilled worker dependency on generous unemployment insurance. An insurance regulation that provides generous unemployment benefits and stipulates cost-redistribution can give rise to a compensation effect through which offshoring generates a high-skill wage reduction.
|Date of creation:||11 Jun 2012|
|Date of revision:|
|Contact details of provider:|| Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund,Sweden|
Phone: +46 +46 222 0000
Fax: +46 +46 2224613
Web page: http://www.nek.lu.se/en
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Sinn, Hans-Werner, 1997.
"The selection principle and market failure in systems competition,"
Journal of Public Economics,
Elsevier, vol. 66(2), pages 247-274, November.
- Sinn, Hans-Werner, 1997. "The selection principle and market failure in systems competition," Munich Reprints in Economics 19854, University of Munich, Department of Economics.
- Hans-Werner Sinn, 2001.
"The New Systems Competition,"
CESifo Working Paper Series
623, CESifo Group Munich.
- Christian Keuschnigg & Evelyn Ribi, 2007.
"Outsourcing, Unemployment and Welfare Policy,"
0720, Oxford University Centre for Business Taxation.
- Keuschnigg, Christian & Ribi, Evelyn, 2007. "Outsourcing, Unemployment and Welfare Policy," CEPR Discussion Papers 6605, C.E.P.R. Discussion Papers.
- Christian Keuschnigg & Evelyn Ribi, 2007. "Outsourcing, Unemployment and Welfare Policy," University of St. Gallen Department of Economics working paper series 2007 2007-41, Department of Economics, University of St. Gallen.
- Christian Keuschnigg & Evelyn Ribi, 2008. "Outsourcing, Unemployment and Welfare Policy," CESifo Working Paper Series 2452, CESifo Group Munich.
- Arndt, Sven W., 1997. "Globalization and the open economy," The North American Journal of Economics and Finance, Elsevier, vol. 8(1), pages 71-79.
- Wilhelm Kohler & Jens Wrona, 2010.
"Offshoring Tasks, yet Creating Jobs?,"
CESifo Working Paper Series
3019, CESifo Group Munich.
- Kohler, Wilhelm & Wrona, Jens, 2011. "Offshoring tasks, yet creating jobs?," University of Tuebingen Working Papers in Economics and Finance 12, University of Tuebingen, Faculty of Economics and Social Sciences.
- Pushan Dutt & Devashish Mitra & Priya Ranjan, 2007.
"International Trade and Unemployment: Theory and Cross-National Evidence,"
070808, University of California-Irvine, Department of Economics.
- Dutt, Pushan & Mitra, Devashish & Ranjan, Priya, 2009. "International trade and unemployment: Theory and cross-national evidence," Journal of International Economics, Elsevier, vol. 78(1), pages 32-44, June.
- Richard A. Brecher, 1974. "Minimum Wage Rates and the Pure Theory of International Trade," The Quarterly Journal of Economics, Oxford University Press, vol. 88(1), pages 98-116.
- Wright, Greg C., 2014. "Revisiting the employment impact of offshoring," European Economic Review, Elsevier, vol. 66(C), pages 63-83.
- Devashish Mitra & Priya Ranjan, 2007.
"Offshoring and Unemployment,"
060719, University of California-Irvine, Department of Economics.
- Davis, Donald R, 1998. "Does European Unemployment Prop Up American Wages? National Labor Markets and Global Trade," American Economic Review, American Economic Association, vol. 88(3), pages 478-94, June.
- Mark P. Moore & Priya Ranjan, 2005. "Globalisation vs Skill-Biased Technological Change: Implications for Unemployment and Wage Inequality," Economic Journal, Royal Economic Society, vol. 115(503), pages 391-422, 04.
- Davidson, Carl & Martin, Lawrence & Matusz, Steven, 1999. "Trade and search generated unemployment," Journal of International Economics, Elsevier, vol. 48(2), pages 271-299, August.
- Egger, Hartmut & Falkinger, Josef, 2003. "The distributional effects of international outsourcing in a 2 x 2 production model," The North American Journal of Economics and Finance, Elsevier, vol. 14(2), pages 189-206, August.
- Gene M. Grossman & Esteban Rossi-Hansberg, 2008.
"Trading Tasks: A Simple Theory of Offshoring,"
American Economic Review,
American Economic Association, vol. 98(5), pages 1978-97, December.
- Wilhelm Kohler, 2004. "International outsourcing and factor prices with multistage production," Economic Journal, Royal Economic Society, vol. 114(494), pages C166-C185, 03.
When requesting a correction, please mention this item's handle: RePEc:hhs:lunewp:2012_016. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (David Edgerton)
If references are entirely missing, you can add them using this form.