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Offshoring tasks, yet creating jobs?

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  • Kohler, Wilhelm
  • Wrona, Jens

Abstract

The policy debate views offshoring as job destruction. Theoretical models of offshoring mostly assume full employment. We develop a model of task trade that allows for equilibrium unemployment. In this model, there are two margins of adjustment. At the extensive margin, moving tasks offshore destroys jobs. At the intensive margin, due to higher productivity of labor in domestic tasks it creates jobs. Exploring these conditions in detail, we identify the potential of non-monotonic adjustment: Early stages of offshoring always lead to higher unemployment, while later stages may entail net job creation. We highlight this potential through numerical simulations.

Suggested Citation

  • Kohler, Wilhelm & Wrona, Jens, 2011. "Offshoring tasks, yet creating jobs?," University of Tübingen Working Papers in Business and Economics 12, University of Tuebingen, Faculty of Economics and Social Sciences, School of Business and Economics.
  • Handle: RePEc:zbw:tuewef:12
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    Cited by:

    1. Vallizadeh E. & Muysken J. & Ziesemer T.H.W., 2015. "Offshoring of medium-skill jobs, polarization, and productivity effect: Implications for wages and low-skill unemployment," MERIT Working Papers 2015-004, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    2. Schmerer, Hans-Jörg, 2012. "FDI, skill-specific unemployment, and institutional spillover effects," Economics Discussion Papers 2012-2, Kiel Institute for the World Economy (IfW Kiel).
    3. Baumgarten, Daniel & Geishecker, Ingo & Görg, Holger, 2013. "Offshoring, tasks, and the skill-wage pattern," European Economic Review, Elsevier, vol. 61(C), pages 132-152.
    4. Spyros Arvanitis & Thomas Bolli & Tobias Stucki, 2017. "In or Out: How Insourcing Foreign Input Production Affects Domestic Production," Management International Review, Springer, vol. 57(6), pages 879-907, December.
    5. Mitra Devashish & Ranjan Priya, 2013. "Fairness, Search Frictions, and Offshoring," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 13(1), pages 137-172, April.
    6. Michael Koch, 2014. "Skills, Tasks and the Scarcity of Talent in a Global Economy," Working Papers 145, Bavarian Graduate Program in Economics (BGPE).
    7. Abigail Cooke & Thomas Kemeny & David L. Rigby, 2016. "Task Trade and the Wage Effects of Import Competition," Working Papers 16-03, Center for Economic Studies, U.S. Census Bureau.
    8. Jan Hogrefe & Yao Yao, 2016. "Offshoring and labor income risk: an empirical investigation," Empirical Economics, Springer, vol. 50(3), pages 1045-1063, May.
    9. Schwörer, Tillmann, 2012. "Offshoring, domestic outsourcing, and productivity: Evidence for a number of European countries," Kiel Working Papers 1786, Kiel Institute for the World Economy (IfW Kiel).
    10. Vallizadeh, Ehsan & Muysken, Joan & Ziesemer, Thomas, 2016. "Offshoring Medium-Skill Tasks, Low-Skill Unemployment and the Skill-Wage Structure," MPRA Paper 75581, University Library of Munich, Germany.
    11. Schmerer, Hans-Jörg, 2014. "Foreign direct investment and search unemployment: Theory and evidence," International Review of Economics & Finance, Elsevier, vol. 30(C), pages 41-56.
    12. Schmerer, Hans-Jörg, 2012. "Skill-biased labor market reforms and international competitiveness," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 6, pages 1-39.
    13. Tillmann Schwörer, 2013. "Offshoring, domestic outsourcing and productivity: evidence for a number of European countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 149(1), pages 131-149, March.
    14. Thede, Susanna, 2012. "A Simple Model of Trade, Job Task Offshoring and Social Insurance," Working Papers 2012:16, Lund University, Department of Economics.
    15. Brändle, Tobias & Kalweit, René, 2016. "The Employment Effects of the EU Eastern Enlargement in Germany," VfS Annual Conference 2016 (Augsburg): Demographic Change 145502, Verein für Socialpolitik / German Economic Association.
    16. Christensen, Jonas Gade, 2011. "Productivity, Size, and the Disintegration of Industrial Production," Working Papers in Economics 07/11, University of Bergen, Department of Economics.
    17. Lutz Arnold & Stefanie Trepl, 2015. "A North-South Trade Model of Offshoring and Unemployment," Open Economies Review, Springer, vol. 26(5), pages 999-1039, November.
    18. Ljubica Nedelkoska & Frank Neffke, 2019. "Skill Mismatch and Skill Transferability: Review of Concepts and Measurements," Papers in Evolutionary Economic Geography (PEEG) 1921, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Jun 2019.
    19. Hogrefe, Jan & Yao, Yao, 2012. "Offshoring and labor income risk," ZEW Discussion Papers 12-025, ZEW - Leibniz Centre for European Economic Research.
    20. Koch, Michael, 2014. "Skills, Tasks and the Scarcity of Talent in a Global Economy," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100337, Verein für Socialpolitik / German Economic Association.
    21. Lutz G. Arnold & Stefanie Trepl, 2011. "Taking Public Opinion Seriously: A General Equilibrium Model of Low-Wage Competition, Offshoring, and Unemployment," Working Papers 101, Bavarian Graduate Program in Economics (BGPE).
    22. Susanna Thede, 2018. "A model of trade, task offshoring and social insurance," International Economics and Economic Policy, Springer, vol. 15(4), pages 787-802, October.

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    More about this item

    Keywords

    Offshoring; Trade in Tasks; Unemployment; Non-monotonicity;
    All these keywords.

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade

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