Offshoring Medium-Skill Tasks, Low-Skill Unemployment and the Skill-Wage Structure

Vallizadeh, Ehsan and Muysken, Joan and Ziesemer, Thomas (2016): Offshoring Medium-Skill Tasks, Low-Skill Unemployment and the Skill-Wage Structure.

Abstract

This paper studies the direct and indirect channels through which offshoring affects the domestic skillwage structure and employment opportunities. To identify these channels, we develop a task-based model with unemployment that accounts for skill heterogeneity and endogenous allocation of domestic tasks to skill groups and abroad. A decline in offshoring costs of medium skill-intensive tasks induces i) a specialization effect towards low and high skill-intensive tasks, explaining one source of wage polarization, ii) an internal skill-task reallocation effect, and iii) a productivity effect due to production cost reductions. The key determinants of these channels are the elasticity of substitution between domestic and offshore tasks and the elasticity of task productivity schedules between domestic skill groups and between domestic and offshore workers across tasks.

• Item Type: MPRA Paper
• Language: English
• Keywords: Skill-Task Assignment; Offshoring; Productivity Effect; Equilibrium Unemployment; Skill-Wage Structure
• Subjects: F - International Economics > F1 - Trade; 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

References

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, 61:132–52.

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, Offshoring 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.

Cortes, G. M. et al. (2016). Where have the middle-wage workers gone? a study of polarization using panel data. Journal of Labor Economics, 34(1):63–105.

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

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 Offshoring on American Workers Using the Current Population Surveys. The Review of Economics and Statistics, 96(4):581–595.

Egger, H., Kreickemeier, U., and Wrona, J. (2015). Offshoring domestic jobs. Journal of International Economics, 97(1):112–25.

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.

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.

Groizard, J. L., Ranjan, P., and Rodriguez-Lopez, A. (2014). Offshoring and jobs: The myriad channels of influence. European Economic Review, 72:221–239.

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

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):1597–1629.

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 theoretical 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.

Meltiz, M. (2003). The Impact of Trade on Intra-Idustry Reallocations and Aggregate Industry Productivity. Econometrica, 71:1695–1725.

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, 117(6):403–51.

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.

Peri, G. and Sparber, C. (2009). Task specialization, immigration, and wages. American Economic Journal: Applied Economics, 1(3):135–169.

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 Economic Review, 75:433–444.

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. Foreign Affairs, 90(4):28–41.

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.