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Offshoring, Unemployment, and Wages: The Role of Labor Market Institutions


  • Priya Ranjan

    () (Department of Economics, University of California-Irvine)


It is shown that when wages are determined through collective bargaining, there is a non-monotonic relationship between the cost of o§shoring and unemployment. Starting from a high cost of off- shoring, a decrease in the cost of o§shoring reduces unemployment first and then increases it. The non-monotonicity of unemployment in the cost of offshoring does not obtain if wages are determined by individual Nash bargaining instead of collective bargaining. The non-monotonic relationship between the cost of offshoring and unemployment is verified through a calibration exercise performed using parameters for Sweden. The calibration exercise predicts that a decrease in the cost of o§shoring, starting from the present level, would reduce unemployment in Sweden. In a two country framework of o§shoring (source country and host country) it is shown how changes in the labor market institutions in one country affect labor market outcomes in both countries.

Suggested Citation

  • Priya Ranjan, 2012. "Offshoring, Unemployment, and Wages: The Role of Labor Market Institutions," Working Papers 121302, University of California-Irvine, Department of Economics.
  • Handle: RePEc:irv:wpaper:121302

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    Cited by:

    1. Carluccio, Juan & Fougère, Denis & Gautier, Erwan, 2016. "The impact of trade shocks on collective wage bargaining agreements," CEPR Discussion Papers 11289, C.E.P.R. Discussion Papers.
    2. Beissinger, Thomas & Chusseau, Nathalie & Hellier, Joël, 2015. "Offshoring and Labour Market Reforms: Modelling the German Experience," IZA Discussion Papers 8920, Institute for the Study of Labor (IZA).
    3. Valeri Sorolla & José Ramón García, 2015. "When is there more employment, with individual or collective wage setting?," Working Papers 853, Barcelona Graduate School of Economics.
    4. Agnese, Pablo & Hromcová, Jana, 2016. "Low-skill offshoring and welfare compensation policies," Economic Modelling, Elsevier, vol. 52(PB), pages 408-426.
    5. Tobias Brändle & Andreas Koch, 2015. "Offshoreability and wages. Evidence from German task data," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 42(2), pages 189-216, June.
    6. Richard Chisik & Julian Emami Namini, 2015. "International Trade and Labor Market Discrimination," Working Papers 043, Ryerson University, Department of Economics.
    7. Hummels, David & Munch, Jakob R. & Xiang, Chong, 2016. "Offshoring and Labor Markets," IZA Discussion Papers 9741, Institute for the Study of Labor (IZA).
    8. Valeri Sorolla, 2014. "The Long Run Effect of Growth on Employment in a Labor Market with Matching Frictions: The Role of Labor Market Institutions," UFAE and IAE Working Papers 949.14, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC), revised 02 Feb 2015.
    9. Beissinger, Thomas & Chusseau, Nathalie & Hellier, Joël, 2016. "Offshoring and labour market reforms in Germany: Assessment and policy implications," Economic Modelling, Elsevier, vol. 53(C), pages 314-333.
    10. Thomas Beissinger & Nathalie Chusseau & Joel Hellier, 2014. "Offshoring, employment, labour market reform and inequality: Modelling the German experience," Working Papers 330, ECINEQ, Society for the Study of Economic Inequality.
    11. Baudy, Philipp & Cords, Dario, 2016. "Deregulation of temporary agency employment in a unionized economy: Does this really lead to a substitution of regular employment?," Hohenheim Discussion Papers in Business, Economics and Social Sciences 06-2016, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    12. José Ramón García & Valeri Sorolla, 2016. "The Calmfors-Driffill Hypothesis with Labour Market Frictions and Regulated Goods Markets," Working Papers 889, Barcelona Graduate School of Economics.
    13. Subhayu Bandyopadhyay & Arnab K. Basu & Nancy H. Chau & Devashish Mitra, 2016. "Disentangling the Wage Impacts of Offshoring On a Developing Country: Theory and Policy," Development Working Papers 394, Centro Studi Luca d'Agliano, University of Milano, revised 01 Jun 2016.
    14. Lutz Arnold & Stefanie Trepl, 2015. "A North-South Trade Model of Offshoring and Unemployment," Open Economies Review, Springer, vol. 26(5), pages 999-1039, November.
    15. repec:eee:reecon:v:71:y:2017:i:3:p:564-587 is not listed on IDEAS
    16. Jose L. Groizard & Priya Ranjan & Antonio Rodriguez-Lopez, 2013. "Offshoring, Exporting, and Jobs," CESifo Working Paper Series 4550, CESifo Group Munich.
    17. Sly, Nicholas & Soderbery, Anson, 2014. "Strategic sourcing and wage bargaining," Journal of Development Economics, Elsevier, vol. 109(C), pages 172-187.

    More about this item


    Offshoring; Unemployment; Collective bargaining; Unions; Unemployment benefits; Recruitment cost;

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General

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