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Unintended signals: Why companies with a history of offshoring have to pay wage penalties for new hires

Author

Listed:
  • Alina Grecu

    (Copenhagen Business School)

  • Wolfgang Sofka

    (Copenhagen Business School
    University of Liverpool, Management School)

  • Marcus M. Larsen

    (Copenhagen Business School
    BI Norwegian Business School)

  • Torben Pedersen

    (Bocconi University)

Abstract

We explore how companies with a history of offshoring attract their future employees. We reason that offshoring decisions send unintended signals about job insecurity to companies’ onshore labor markets. This signaling effect implies that offshoring companies must pay higher salaries for new hires than non-offshoring companies. We tested our predictions on a sample of 7971 matched managers and professionals recently hired by offshoring and non-offshoring companies. Our results indicate a 3–7% wage penalty for offshoring companies. Thus, we conclude that not only is offshoring challenging to implement, but it can also entail a number of general ramifications for the domestic labor market.

Suggested Citation

  • Alina Grecu & Wolfgang Sofka & Marcus M. Larsen & Torben Pedersen, 2022. "Unintended signals: Why companies with a history of offshoring have to pay wage penalties for new hires," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 53(3), pages 534-549, April.
    • Handle: RePEc:pal:jintbs:v:53:y:2022:i:3:d:10.1057_s41267-021-00486-3
    DOI: 10.1057/s41267-021-00486-3
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