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Offshoring and labor income risk

  • Hogrefe, Jan
  • Yao, Yao

This paper analyzes the impact increased offshoring has on labor income risk. It is therefore distinct from a large number of studies explaining the level effects of globalization on the labor market in that it takes a look at effects on second moments, i.e. the variance of incomes. It provides an assessment that directly connects labor income risk and offshoring trends at the sector level. Importantly, we distinguish between transitory and permanent shocks to individual income. Permanent income risk is defined as variance of shocks to income that do not fade out over time and are assumed to be not self-insurable. It thus has a particular relevance for individual welfare. Our findings suggest that offshoring tends to lower permanent income risk. This effect is particularly strong for offshoring to low-income destinations. Hence, there could be potential welfare gains when domestic firms increasingly offshore production to foreign countries.

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Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 12-025.

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Date of creation: 2012
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Handle: RePEc:zbw:zewdip:12025
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  1. Geishecker, Ingo & Görg, Holger, 2007. "Winners and losers: A Micro-level Analysis of International Outsourcing and Wages," CEPR Discussion Papers 6484, C.E.P.R. Discussion Papers.
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  11. Aiyagari, S Rao, 1994. "Uninsured Idiosyncratic Risk and Aggregate Saving," The Quarterly Journal of Economics, MIT Press, vol. 109(3), pages 659-84, August.
  12. Gartner, Hermann, 2005. "The imputation of wages above the contribution limit with the German IAB employment sample," FDZ Methodenreport 200502_en, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
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  14. Buch, Claudia M. & Lipponer, Alexander, 2007. "Volatile multinationals? Evidence from the labor demand of German firms," Discussion Paper Series 1: Economic Studies 2007,22, Deutsche Bundesbank, Research Centre.
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  16. Senses, Mine Zeynep, 2010. "The effects of offshoring on the elasticity of labor demand," Journal of International Economics, Elsevier, vol. 81(1), pages 89-98, May.
  17. Kjetil Storesletten & Chris I. Telmer & Amir Yaron, 2004. "Cyclical Dynamics in Idiosyncratic Labor Market Risk," Journal of Political Economy, University of Chicago Press, vol. 112(3), pages 695-717, June.
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