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Trade in tasks: Revisiting the wage and employment effects of offshoring

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  • Kohler, Wilhelm
  • Wrona, Jens

Abstract

We revisit Grossman and Rossi-Hansberg's (2008) famous result, that under certain conditions offshoring of low-skilled labor tasks raises the domestic wage for low-skilled workers. Our re-examination features a less benign environment where Rybczynski-type reallocation of factors to absorb offshoring-induced job displacement is ruled out. We allow for simultaneous offshoring of both skilled and unskilled labor, and we derive new results on the role of factor-bias in offshoring, identifying conditions under which offshoring has a "lifiting-all-boats" effect benefitting all workers. Extending our analysis to a frictional labor market with equilibrium unemployment due to costly matching, we demonstrate that under these same conditions offshoring is also associated with rising employment.

Suggested Citation

  • Kohler, Wilhelm & Wrona, Jens, 2019. "Trade in tasks: Revisiting the wage and employment effects of offshoring," DICE Discussion Papers 320, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    • Handle: RePEc:zbw:dicedp:320
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    More about this item

    Keywords

    Offshoring; Trade in Tasks; Wages; Unemployment; Search and Matching;
    All these keywords.

    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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