Offshoring and the Polarization of the U.S. Labor Market

Using firm-level data on offshoring paired with occupation-level data on employment and wages, the author estimates the impact that offshoring has had on U.S. workers from 2002 to 2008. She finds that offshoring by U.S. firms has contributed to relative gains for the most high-skilled workers and relative losses for middle-skilled workers. An increase in offshoring in an industry is associated with an increase in the wage gap between workers at the 75th percentile and workers with median earnings in that industry, and with a decrease in the gap between workers earning the median wages and those at the 25th percentile. This pattern can be explained by the tasks performed by workers. Offshoring is associated with a decrease in wages for occupations that rely heavily on routine tasks and an increase in wages if the occupation is nonroutine and communication-task intensive. The results hold in both ordinary least squares (OLS) and instrumental variable specifications.