IDEAS home Printed from
   My bibliography  Save this paper

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.

Suggested Citation

  • Hogrefe, Jan & Yao, Yao, 2012. "Offshoring and labor income risk," ZEW Discussion Papers 12-025, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  • Handle: RePEc:zbw:zewdip:12025

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Tom Krebs & Pravin Krishna & William Maloney, 2010. "Trade Policy, Income Risk, and Welfare," The Review of Economics and Statistics, MIT Press, vol. 92(3), pages 467-481, August.
    2. Constantinides, George M & Duffie, Darrell, 1996. "Asset Pricing with Heterogeneous Consumers," Journal of Political Economy, University of Chicago Press, vol. 104(2), pages 219-240, April.
    3. Feenstra, Robert C & Hanson, Gordon H, 1996. "Globalization, Outsourcing, and Wage Inequality," American Economic Review, American Economic Association, vol. 86(2), pages 240-245, May.
    4. Pravin Krishna & Mine Zeynep Senses, 2009. "International Trade and Labor Income Risk in the United States," NBER Working Papers 14992, National Bureau of Economic Research, Inc.
    5. Ingo Geishecker & Holger Görg, 2008. "Winners and losers: a micro-level analysis of international outsourcing and wages," Canadian Journal of Economics, Canadian Economics Association, vol. 41(1), pages 243-270, February.
    6. David K. Levine & William R. Zame, 2002. "Does Market Incompleteness Matter?," Econometrica, Econometric Society, vol. 70(5), pages 1805-1839, September.
    7. S. Rao Aiyagari, 1994. "Uninsured Idiosyncratic Risk and Aggregate Saving," The Quarterly Journal of Economics, Oxford University Press, vol. 109(3), pages 659-684.
    8. Wilhelm Kohler & Jens Wrona, 2010. "Offshoring Tasks, yet Creating Jobs?," CESifo Working Paper Series 3019, CESifo Group Munich.
    9. Carroll, Christopher D. & Samwick, Andrew A., 1997. "The nature of precautionary wealth," Journal of Monetary Economics, Elsevier, vol. 40(1), pages 41-71, September.
    10. Ann Harrison & Margaret McMillan, 2011. "Offshoring Jobs? Multinationals and U.S. Manufacturing Employment," The Review of Economics and Statistics, MIT Press, vol. 93(3), pages 857-875, August.
    11. Christian Dustmann & Johannes Ludsteck & Uta Schönberg, 2009. "Revisiting the German Wage Structure," The Quarterly Journal of Economics, Oxford University Press, vol. 124(2), pages 843-881.
    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].
    13. Costas Meghir & Luigi Pistaferri, 2004. "Income Variance Dynamics and Heterogeneity," Econometrica, Econometric Society, vol. 72(1), pages 1-32, January.
    14. 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.
    15. Tom Krebs, 2003. "Human Capital Risk and Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 118(2), pages 709-744.
    16. 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.
    17. Buch, Claudia M. & Lipponer, Alexander, 2010. "Volatile multinationals? Evidence from the labor demand of German firms," Labour Economics, Elsevier, vol. 17(2), pages 345-353, April.
    18. Becker Sascha O & Muendler Marc-Andreas, 2008. "The Effect of FDI on Job Security," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 8(1), pages 1-46, April.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Hogrefe, Jan, 2012. "Führt Offshoring zu höherem Einkommensrisiko?," ZEW Wachstums- und Konjunkturanalysen, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research, vol. 15(2), pages 6-7.

    More about this item


    trade; offshoring; wages; labor income risk;

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:zewdip:12025. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.