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Offshoring medium-skill tasks, low-skill unemployment and the skill-wage structure

Author

Listed:
  • Vallizadeh, Ehsan

    (Institute for Employment Research (IAB), and SBE, Maastricht University)

  • Muysken, Joan

    (UNU-MERIT, CofFEE-Europe and SBE, Maastricht University)

  • Ziesemer, Thomas

    (UNU-MERIT, and SBE, Maastricht University)

Abstract

This paper studies the direct and indirect channels through which offshoring affects the domestic skillwage structure and employment opportunities. To identify these channels, we develop a task-based model with unemployment that accounts for skill heterogeneity and endogenous allocation of domestic tasks to skill groups and abroad. A decline in offshoring costs of medium skill-intensive tasks induces i) a specialization effect towards low and high skill-intensive tasks, explaining one source of wage polarization, ii) an internal skill-task reallocation effect, and iii) a productivity effect due to production cost reductions. The key determinants of these channels are the elasticity of substitution between domestic and offshore tasks and the elasticity of task productivity schedules between domestic skill groups and between domestic and offshore workers across tasks.

Suggested Citation

  • Vallizadeh, Ehsan & Muysken, Joan & Ziesemer, Thomas, 2016. "Offshoring medium-skill tasks, low-skill unemployment and the skill-wage structure," MERIT Working Papers 2016-070, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  • Handle: RePEc:unm:unumer:2016070
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    More about this item

    Keywords

    Skill-Task Assignment; Offshoring; Productivity Effect; Equilibrium Unemployment; Skill-Wage Structure;
    All these keywords.

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F66 - International Economics - - Economic Impacts of Globalization - - - Labor
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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