IDEAS home Printed from https://ideas.repec.org/a/bpj/bejmac/v19y2019i1p22n14.html
   My bibliography  Save this article

Did capital replace labor? New evidence from offshoring

Author

Listed:
  • Choi Paul Moon Sub

    (College of Business Administration, Ewha Womans University, 52 Ewhayeodae-gil, Seodaemun-gu, Seoul 03760, Republic of Korea)

  • Kim Kee Beom

    (International Labour Organization, 4 route des Morillons, CH-1211 Genève 22, Switzerland)

  • Seo Jinyoung

    (Department of Economics, University of California, 1118 Social Sciences and Humanities, Davis, CA 95616, USA)

Abstract

Neoclassical theory explains the global decline of the labor income share by capital-labor substitution due to the affordable relative price of capital. Based on the Morishima elasticities of substitution among capital, labor disaggregated into high-, medium-, and low-skill groups, and imported and domestic intermediate inputs, offshoring appears to disproportionately affect job polarization globally and in developed economies. These findings in favor of the globalization hypothesis are buttressed by multivariate panel regressions. Lastly, offshoring might reinforce technological changes, a double-edged sword that can boost productivity growth but exacerbate wage inequality.

Suggested Citation

  • Choi Paul Moon Sub & Kim Kee Beom & Seo Jinyoung, 2019. "Did capital replace labor? New evidence from offshoring," The B.E. Journal of Macroeconomics, De Gruyter, vol. 19(1), pages 1-22, January.
    • Handle: RePEc:bpj:bejmac:v:19:y:2019:i:1:p:22:n:14
    DOI: 10.1515/bejm-2018-0079
    as

    Download full text from publisher

    File URL: https://doi.org/10.1515/bejm-2018-0079
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.
    File URL: https://libkey.io/10.1515/bejm-2018-0079?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Nicholas Bloom & Mirko Draca & John Van Reenen, 2016. "Trade Induced Technical Change? The Impact of Chinese Imports on Innovation, IT and Productivity," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 83(1), pages 87-117.
    2. Marcel P. Timmer & Erik Dietzenbacher & Bart Los & Robert Stehrer & Gaaitzen J. Vries, 2015. "An Illustrated User Guide to the World Input–Output Database: the Case of Global Automotive Production," Review of International Economics, Wiley Blackwell, vol. 23(3), pages 575-605, August.
    3. Arnaud Costinot & Jonathan Vogel, 2010. "Matching and Inequality in the World Economy," Journal of Political Economy, University of Chicago Press, vol. 118(4), pages 747-786, August.
    4. David H. Autor & David Dorn & Gordon H. Hanson, 2013. "The China Syndrome: Local Labor Market Effects of Import Competition in the United States," American Economic Review, American Economic Association, vol. 103(6), pages 2121-2168, October.
    5. John Duffy & Chris Papageorgiou & Fidel Perez-Sebastian, 2004. "Capital-Skill Complementarity? Evidence from a Panel of Countries," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 327-344, February.
    6. Charles Blackorby & R. Robert Russell, 1981. "The Morishima Elasticity of Substitution; Symmetry, Constancy, Separability, and its Relationship to the Hicks and Allen Elasticities," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 48(1), pages 147-158.
    7. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-1297, November.
    8. Sébastien Miroudot & Rainer Lanz & Alexandros Ragoussis, 2009. "Trade in Intermediate Goods and Services," OECD Trade Policy Papers 93, OECD Publishing.
    9. Blackorby, Charles & Russell, R Robert, 1989. "Will the Real Elasticity of Substitution Please Stand Up? (A Comparison of the Allen/Uzawa and Morishima Elasticities)," American Economic Review, American Economic Association, vol. 79(4), pages 882-888, September.
    10. Kumbhakar, Subal C., 1990. "Production frontiers, panel data, and time-varying technical inefficiency," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 201-211.
    11. Fernando Parro, 2013. "Capital-Skill Complementarity and the Skill Premium in a Quantitative Model of Trade," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(2), pages 72-117, April.
    12. Maarten Goos & Alan Manning & Anna Salomons, 2014. "Explaining Job Polarization: Routine-Biased Technological Change and Offshoring," American Economic Review, American Economic Association, vol. 104(8), pages 2509-2526, August.
    13. Feenstra, Robert C. & Hanson, Gordon H., 1997. "Foreign direct investment and relative wages: Evidence from Mexico's maquiladoras," Journal of International Economics, Elsevier, vol. 42(3-4), pages 371-393, May.
    14. Berndt, Ernst R. & Christensen, Laurits R., 1973. "The translog function and the substitution of equipment, structures, and labor in U.S. manufacturing 1929-68," Journal of Econometrics, Elsevier, vol. 1(1), pages 81-113, March.
    15. Kim, H Youn, 1992. "The Translog Production Function and Variable Returns to Scale," The Review of Economics and Statistics, MIT Press, vol. 74(3), pages 546-552, August.
    16. Judson, Ruth A. & Owen, Ann L., 1999. "Estimating dynamic panel data models: a guide for macroeconomists," Economics Letters, Elsevier, vol. 65(1), pages 9-15, October.
    17. Gene M. Grossman & Esteban Rossi-Hansberg, 2008. "Trading Tasks: A Simple Theory of Offshoring," American Economic Review, American Economic Association, vol. 98(5), pages 1978-1997, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gueyon Kim & Dohyeon Lee, 2020. "Offshoring and Segregation by Skill: Theory and Evidence," Working Papers 2020-073, Human Capital and Economic Opportunity Working Group.
    2. Egger, Hartmut & Kreickemeier, Udo & Moser, Christoph & Wrona, Jens, 2024. "Offshoring and job polarisation between firms," Journal of International Economics, Elsevier, vol. 148(C).
    3. Kasahara, Hiroyuki & Liang, Yawen & Rodrigue, Joel, 2016. "Does importing intermediates increase the demand for skilled workers? Plant-level evidence from Indonesia," Journal of International Economics, Elsevier, vol. 102(C), pages 242-261.
    4. Dirk Bursian & Arne J. Nagengast, 2020. "Offshoring And The Polarization Of The Demand For Capital," Economic Inquiry, Western Economic Association International, vol. 58(1), pages 260-282, January.
    5. Laurie S. M. Reijnders & Marcel P. Timmer & Xianjia Ye, 2021. "Labour demand in global value chains: Is there a bias against unskilled work?," The World Economy, Wiley Blackwell, vol. 44(9), pages 2547-2571, September.
    6. Aleksandra Parteka & Joanna Wolszczak-Derlacz, 2020. "Wage response to global production links: evidence for workers from 28 European countries (2005–2014)," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 156(4), pages 769-801, November.
    7. Daron Acemoglu & Gino Gancia & Fabrizio Zilibotti, 2015. "Offshoring and Directed Technical Change," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(3), pages 84-122, July.
    8. Katharina Längle, 2020. "Offshoring: What Consequences for Workers? Evidence from Global Value Chains," Documents de travail du Centre d'Economie de la Sorbonne 20005, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    9. David Hummels & Jakob R. Munch & Chong Xiang, 2018. "Offshoring and Labor Markets," Journal of Economic Literature, American Economic Association, vol. 56(3), pages 981-1028, September.
    10. Reshef, Ariell & Santoni, Gianluca, 2023. "Are your labor shares set in Beijing? The view through the lens of global value chains," European Economic Review, Elsevier, vol. 155(C).
    11. Antonio Rodriguez-Lopez & Miaojie Yu, 2017. "All-Around Trade Liberalization and Firm-Level Employment: Theory and Evidence from China," CESifo Working Paper Series 6710, CESifo.
    12. Zouheir El-Sahli & Joakim Gullstrand & Karin Olofsdotter, 2022. "The external effects of offshoring on job security in SMEs," Small Business Economics, Springer, vol. 59(4), pages 1613-1640, December.
    13. Baumgarten, Daniel & Irlacher, Michael & Koch, Michael, 2020. "Offshoring and non-monotonic employment effects across industries in general equilibrium," European Economic Review, Elsevier, vol. 130(C).
    14. Katharina Längle, 2020. "Offshoring: What Consequences for Workers? Evidence from Global Value Chains," Post-Print halshs-02899944, HAL.
    15. Blanchard, Emily & Willmann, Gerald, 2016. "Trade, education, and the shrinking middle class," Journal of International Economics, Elsevier, vol. 99(C), pages 263-278.
    16. Katharina Längle, 2020. "Offshoring: What Consequences for Workers? Evidence from Global Value Chains," Working Papers hal-02548691, HAL.
    17. Muendler, Marc-Andreas, 2017. "Trade, technology, and prosperity: An account of evidence from a labor-market perspective," WTO Staff Working Papers ERSD-2017-15, World Trade Organization (WTO), Economic Research and Statistics Division.
    18. Li, Hongbin & Li, Lei & Ma, Hong, 2022. "China's skill-biased imports," China Economic Review, Elsevier, vol. 74(C).
    19. Jerbashian, Vahagn, 2021. "Trade in information technologies and changes in the demand for occupations," China Economic Review, Elsevier, vol. 67(C).
    20. Elizabeth J. Casabianca & Alessia Lo Turco & Claudia Pigini, 2019. "Import penetration and returns to tasks: recent evidence from the Peruvian labour market," Empirical Economics, Springer, vol. 56(2), pages 551-617, February.

    More about this item

    Keywords

    job polarization; labor income share; morishima elasticity of substitution; offshoring; technological changes;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

    Statistics

    Access and download statistics

    Corrections

    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:bpj:bejmac:v:19:y:2019:i:1:p:22:n:14. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.degruyter.com .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.