Offshoring of Medium-skill Jobs, Polarization, and Productivity Effect: Implications for Wages and Low-skill Unemployment

Vallizadeh, Ehsan and Muysken, Joan and Ziesemer, Thomas (2015): Offshoring of Medium-skill Jobs, Polarization, and Productivity Effect: Implications for Wages and Low-skill Unemployment.

Abstract

We examine the effects of endogenous offshoring on cost-efficiency, wages and unemployment in a task- assignment model with skill heterogeneity. Exact conditions for the following insights are derived. The distributional effect of offshoring (high-) low-skill-intensive tasks is similar to (unskilled-) skill-biased technology changes, while offshoring medium-skill-intensive tasks induces wage polarization. Offshoring improves cost-efficiency through international task reallocation and puts a downward pressure on all wages through domestic skill-task reallocation. If elasticities of task substitution are low (high), the downward pressure on wages in neighboring skill segments is low (high) with a net effect of higher (lower) wages and employment.

• Item Type: MPRA Paper
• Language: English
• Keywords: Task Assignment, Offshoring, Skills, Cost-efficiency Effect, Equilibrium Unemployment
• Subjects: F - International Economics > F1 - Trade > F16 - Trade and Labor Market Interactions; F - International Economics > F6 - Economic Impacts of Globalization > F66 - Labor; J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J21 - Labor Force and Employment, Size, and Structure; J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J24 - Human Capital ; Skills ; Occupational Choice ; Labor Productivity; J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers > J64 - Unemployment: Models, Duration, Incidence, and Job Search

References

Acemoglu, D. (2002). Technical change, inequality, and the labor market. Journal of Economic Literature, 40:7–72.

Acemoglu, D. and Autor, D. (2011). Chapter 12 - Skills, Tasks and Technologies: Implications for Employment and Earnings. In Ashenfelter, O. and Card, D., editors, Handbook of Labor Economics, volume 4, Part B, pages 1043–1171. Elsevier.

Autor, D. H. and Dorn, D. (2009). This jobs are getting old: Measuring changes in job opportunities using occupation age structure. American Economic Review: Papers & Proceedings, 99(2):45–51.

Autor, D. H. and Dorn, D. (2013). The growth of low skill service jobs and the polarization of the U.S. labor market. American Economic Review, 103(5):1553–1597.

Autor, D. H., Katz, L. F., and Kearney, M. S. (2006). The Polarization of the U.S. Labor Market. American Economic Review, 96(2):189–194.

Autor, D. H., Katz, L. F., and Kearney, M. S. (2008). Trend in U.S. wage inequality: Revising the revisionists. Review of Economics and Statistics, 90:300–323.

Autor, D. H., Levy, F., and Murnane, R. J. (2003). The Skill Content of Recent Technological Change: An Empirical Investigation. The Quarterly Journal of Economics, 118:1279–1333.

Baumgarten, D., Geishecker, I., and Görg, H. (2013). Offshoring, tasks, and the skill-wage pattern. European Economic Review, 61.

Becker, S. O., Ekholm, K., and Muendler, M.-A. (2013). Offshoring and the onshore composition of tasks and skills. Journal of International Economics, 90:91–106.

Bhagwati, J., Panagariya, A., and Srinivasan, T. (2004). The muddles over outsourcing. Journal of Economic Perspectives, 18:93–114.

Blinder, A. S. (2009a). How Many U.S. Jobs Might Be Offshorable? World Economics, 10(2):41–78.

Blinder, A. S. (2009b). Offshoring: Big deal, or business as usual? In Friedman, B. M., editor, Offshring of Amercian Jobs. What Response from U.S. Economic Policy?, pages 19–60. MIT Press, Cambridge, Mass.

Brynin, M. and Longhi, S. (2009). Overqualification: Major or minor mismatch? Economics of Education Review, 28:114–121.

Costinot, A. and Vogel, J. (2010). Matching and Inequality in the World Economy. Journal of Political Econ- omy, 118(4):747–786.

Dupuy, A. (2012). A microfoundation for production functions: Assignment of heterogeneous workers to heterogeneous jobs. Economica, 79:534–556.

Dustmann, C., Ludsteck, J., and Schönberg, U. (2009). Revisiting the German Wage Structure. Quarterly Journal of Economics, 124(2):843–881.

Ebenstein, A., Harrison, A., McMillan, M., and Phillips, S. (2014). Estimating the Impact of Trade and Off-shoring on American Workers Using the Current Population Surveys. The Review of Economics and Statistics, 96(4):581–595.

Feenstra, R. C. and Hanson, G. H. (1996). Globalization, outsourcing, and wage inequality. The American Economic Review, 86(2):240–245.

Feenstra, R. C. and Hanson, G. H. (1999). The impact of outsourcing and high-technology capital on wages: Estimates for the united states, 1979–1990. The Quarterly Journal of Economics, 86(2):240–245.

Firpo, S., Fortin, N. M., and Lemieux, T. (2011). Occupational tasks and changes in the wage structure. IZA, Discussion Paper No. 5542.

Gandolfo, G. (2010). Economic Dynamics. Springer-Verlag, fourth edition. Study Edition.

Goldin, C. D. and Katz, L. F. (2009). The race between education and technology. Harvard University Press.

Goos, M. and Manning, A. (2007). Lousy and Lovely Jobs: The Rising Polarization of Work in Britain. Review of Economic Studies, 89:118–133.

Goos, M., Manning, A., and Salomons, A. (2009). Job polarization in Europe. American Economic Review: Papers & Proceedings, 99:58–63.

Goos, M., Manning, A., and Salomons, A. (2014). Explaining job polarization: Routine-biased technological change and offshoring. American Economic Review, 104:2509–2526.

Grossman, G. M. and Rossi-Hansberg, E. (2008). Trading Task: A Simple Theory of Offshoring. American Economic Review, 98:1978–1997.

Harrison, A. and McMillan, M. (2011). Offshoring Jobs? Multinationals and U.S. Manufacturing Employment. The Review of Economics and Statistics, 93(3):857–875.

Hummels, D., Jørgensen, R., Munch, J., and Xiang, C. (2014). The Wage Effects of Offshoring: Evidence from Danish Matched Worker-Firm Data. American Economic Review, 104(6).

Jensen, J. B. and Kletzer, L. G. (2010). Measuring Tradable Services and the Task Content of Offshorable Services Jobs, pages 309–335. University of Chicago Press.

Jones, R. W. and Kierzkowski, H. (1990). The role of services in production and international trade: A theo- retical framework. In Jones, R. W. and Krueger, A. O., editors, The Political Economy of International Trade, pages 31–48. Basil Blackwell, Oxford.

Jones, R. W. and Kierzkowski, H. (2001). A framework for fragmentation. In Arndt, S. and Kierzkowski, H., editors, Fragmentation: New Production Patterns in the World Economy, pages 17–45. Oxford University Press, New York.

Kohler, W. (2004a). Aspects of international fragmentation. Review of International Economics, 12:793–816.

Kohler, W. (2004b). International outsourcing and factor prices with multistage production. Economic Journal, 114:166–185.

Kohler, W. and Wrona, J. (2011). Offshoring Tasks, yet Creating Jobs? University of Tübingen, Working Paper No. 12.

Layard, R., Nickell, S., and Jackman, R. (2005). Unemployment: Macroeconomic Performance and the Labour Market. Oxford University Press.

Michaels, G., Natraj, A., and Van Reenen, J. (2014). Has ICT Polarized Skill Demand? Evidence from Eleven Countries over Twenty-Five Years. The Review of Economics and Statistics, 96(1):60–77.

Moncarz, R. J., Wolf, M. G., and Wright, B. (2008). Service-providing occupations, offshoring, and the labor market. Monthly Labor Review, pages 71–86.

Muysken, J., Vallizadeh, E., and Ziesemer, T. (2015). Migration, Unemployment, and Skill Downgrading. The Scandinavian Journal of Economics, 00(0):1–45.

Olney, W. W. (2012). Offshoring, immigration, and the native wage distribution. Canadian Journal of Economics, 45:830–856.

Ottaviano, G. I. P., Peri, G., and Wright, G. C. (2013). Immigration, Offshoring and American Jobs. American Economic Review, 103(5):1925–59.

Pissarides, C. A. (2000). Equilibrium Unemployment Theory. MIT Press, Cambrdige, MA, 2nd edition.

Shapiro, C. and Stiglitz, J. (1984). Equilibrium unemployment as a worker discipline device. American Eco- nomic Review, 75:433–444.

Sly, N. (2012). International productivity differences, trade and the distribution of factor endowments. Re- view of International Economics, 20:740–757.

Snower, D. J., Brown, A. J. G., and Merkl, C. (2009). Globalization and the welfare state: A review of Hans- Werner Sinn’s Can Germany Be Saved? Journal of Economic Literature, 47:136–158.

Spence, M. (2011). Globalization and unemployment: The downside of integrating markets. Online, http://www.foreignaffairs.com/articles/67874/michael-spence/globalization-and-unemployment.

Spitz-Oener, A. (2006). Technical change, job tasks, and rising educational demands: Looking outside the wage structure. Journal of Labour Economics, 24:235–270.

Wright, G. C. (2014). Revisiting the employment impact of offshoring. European Economic Review, 66:63–83.