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Offshoring, Endogenous Skill Decision, and Labor Market Outcomes

Author

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  • Agnese, Pablo

    (UIC Barcelona)

  • Hromcová, Jana

    (ESSCA School of Management)

Abstract

We discuss the effects of low-skill offshoring on the endogenous schooling decision of workers along with the potential changes in the labor market. The analysis is performed in the context of a matching model with different possible equilibria. Our exercise suggests that the endogenous adjustment of low-skill workers can only partially offset the welfare-deteriorating effects of offshoring. As a result, we aim at restoring welfare by increasing the opportunity cost of staying low-skill. In addition to this, we also consider labor flexibility as an effective policy to deal with the adverse welfare effects of offshoring that befall those in the lowest end of the skill ladder.

Suggested Citation

  • Agnese, Pablo & Hromcová, Jana, 2016. "Offshoring, Endogenous Skill Decision, and Labor Market Outcomes," IZA Discussion Papers 10299, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp10299
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    References listed on IDEAS

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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.
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    3. 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(4), pages 463-479, September.
    4. Agnese, Pablo & Hromcová, Jana, 2016. "Low-skill offshoring and welfare compensation policies," Economic Modelling, Elsevier, vol. 52(PB), pages 408-426.
    5. Feenstra, Robert C. & Hanson, Gordon H., 1997. "Foreign direct investment and relative wages: Evidence from Mexico's maquiladoras," Journal of International Economics, Elsevier, vol. 42(3-4), pages 371-393, May.
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    More about this item

    Keywords

    offshoring; welfare; skills; education; flexibility;
    All these keywords.

    JEL classification:

    • F66 - International Economics - - Economic Impacts of Globalization - - - Labor
    • I25 - Health, Education, and Welfare - - Education - - - Education and Economic Development
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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