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Offshoring and Unemployment: The Role of Search Frictions and Labor Mobility

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  • Mitra, Devashish

    () (Syracuse University)

  • Ranjan, Priya

    () (University of California, Irvine)

Abstract

In a two-sector, general-equilibrium model with labor-market search frictions, we find that wage increases and sectoral unemployment decreases upon offshoring in the presence of perfect intersectoral labor mobility. If, as a result, labor moves to the sector with the lower (or equal) vacancy costs, there is an unambiguous decrease in economywide unemployment. With imperfect intersectoral labor mobility, unemployment in the offshoring sector can rise, with an unambiguous unemployment reduction in the non-offshoring sector. Imperfect labor mobility can result in a mixed equilibrium in which only some firms in the industry offshore, with unemployment in this sector rising.

Suggested Citation

  • Mitra, Devashish & Ranjan, Priya, 2009. "Offshoring and Unemployment: The Role of Search Frictions and Labor Mobility," IZA Discussion Papers 4136, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp4136
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    References listed on IDEAS

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    1. Elhanan Helpman, 2006. "Trade, FDI, and the Organization of Firms," Journal of Economic Literature, American Economic Association, vol. 44(3), pages 589-630, September.
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    5. Cahuc, Pierre & Wasmer, Etienne, 2001. "Does Intrafirm Bargaining Matter In The Large Firm'S Matching Model?," Macroeconomic Dynamics, Cambridge University Press, vol. 5(05), pages 742-747, November.
    6. Artuç, Erhan & Chaudhuri, Shubham & McLaren, John, 2008. "Delay and dynamics in labor market adjustment: Simulation results," Journal of International Economics, Elsevier, vol. 75(1), pages 1-13, May.
    7. Jagdish Bhagwati & Arvind Panagariya, 2004. "The Muddles over Outsourcing," Journal of Economic Perspectives, American Economic Association, vol. 18(4), pages 93-114, Fall.
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    9. Mitra, Devashish & Ranjan, Priya, 2008. "Temporary shocks and offshoring: The role of external economies and firm heterogeneity," Journal of Development Economics, Elsevier, vol. 87(1), pages 76-84, August.
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    Cited by:

    1. Mine Zeynep Senses & Pravin Krishna, 2009. "International Trade and Labor Income Risk in the United States," 2009 Meeting Papers 471, Society for Economic Dynamics.
    2. Schmerer, Hans-Jörg, 2012. "Skill-biased labor market reforms and international competitiveness," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 6, pages 1-39.
    3. Éva Polgár & Julia Wörz, 2010. "No risk and some fun? Trade and wages in the enlarged European Union," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 37(2), pages 127-163, May.

    More about this item

    Keywords

    trade; offshoring; search; unemployment;

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • 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

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