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OFFSHORING PRODUCTION: A SIMPLE MODEL OF WAGES, PRODUCTIVITY, AND GROWTH

OFFSHORING PRODUCTION: A SIMPLE MODEL OF WAGES, PRODUCTIVITY, AND GROWTH We examine the relationship between offshoring and the labor market in an occupational choice model of trade and endogenous growth where workers are employed on the basis of their individual skill levels. Trade liberalization leads to offshoring and reduces employment in the manufacturing sector. Displaced workers move into traditional and innovation sectors according to their skill levels, shaping real wages and aggregate productivity in the manufacturing sector. The paper aims to show how inter‐sectoral labor market adjustments, highlighted by skill heterogeneity, could be a possible explanation for the simultaneous rise in productivity and reduction in real wages that have coincided with the sharp escalation of offshoring activities in the U.S. manufacturing sector since 2004. (JEL F16, F23, J24) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Economic Inquiry Wiley

OFFSHORING PRODUCTION: A SIMPLE MODEL OF WAGES, PRODUCTIVITY, AND GROWTH

Economic Inquiry , Volume 49 (2) – Apr 1, 2011

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References (44)

Publisher
Wiley
Copyright
© 2010 Western Economic Association International
ISSN
0095-2583
eISSN
1465-7295
DOI
10.1111/j.1465-7295.2010.00293.x
Publisher site
See Article on Publisher Site

Abstract

We examine the relationship between offshoring and the labor market in an occupational choice model of trade and endogenous growth where workers are employed on the basis of their individual skill levels. Trade liberalization leads to offshoring and reduces employment in the manufacturing sector. Displaced workers move into traditional and innovation sectors according to their skill levels, shaping real wages and aggregate productivity in the manufacturing sector. The paper aims to show how inter‐sectoral labor market adjustments, highlighted by skill heterogeneity, could be a possible explanation for the simultaneous rise in productivity and reduction in real wages that have coincided with the sharp escalation of offshoring activities in the U.S. manufacturing sector since 2004. (JEL F16, F23, J24)

Journal

Economic InquiryWiley

Published: Apr 1, 2011

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