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Offshoring, Low-skilled Immigration and Labor Market Polarization

Author

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  • Andrei Zlate

    (Board of Governors of the Federal Reserve System)

  • Federico Mandelman

    (Federal Reserve Bank of Atlanta)

Abstract

During the last three decades, the U.S. labor market was characterized by its employment polarization. As jobs in the middle of the skill distribution disappeared, employment expanded for the high and low-skill occupations. Real wages did not follow the same pattern. While earnings for the high-wage occupations increased robustly, wages for both low and middle-skill workers remained subdued. We relate this evidence to the increase in offshoring and low-skilled migration, and develop a multi-country stochastic growth model to rationalize the patterns of employment and wages. Offshoring negatively affects the middle-skill occupations, but increases aggregate productivity. This benefits the high-skill occupations, and in turn leads to increased demand for the non-tradable personal services, which employ mostly low-skill workers. However, low-skill wages remain depressed due to the rising migration inflows. Native workers react by upgrading the skill content of their labor tasks as they invest in training. The model is estimated with multilateral trade-weighted macroeconomic indicators and U.S.-Mexico border enforcement data.

Suggested Citation

  • Andrei Zlate & Federico Mandelman, 2013. "Offshoring, Low-skilled Immigration and Labor Market Polarization," 2013 Meeting Papers 1073, Society for Economic Dynamics.
  • Handle: RePEc:red:sed013:1073
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    Cited by:

    1. Zlate, Andrei, 2016. "Offshore production and business cycle dynamics with heterogeneous firms," Journal of International Economics, Elsevier, vol. 100(C), pages 34-49.
    2. Mine Senses & Andrei Zlate & Christopher Kurz, 2017. "All Shook Up: International Trade and Firm-level Volatility," 2017 Meeting Papers 851, Society for Economic Dynamics.

    More about this item

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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