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Offshoring and Unemployment: The Role of Search Frictions and Labor Mobility

Author

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  • Mitra, Devashish

    (Syracuse University)

  • Ranjan, Priya

    (University of California, Irvine)

Abstract

In a two-sector, general-equilibrium model with labor-market search frictions, we find that wage increases and sectoral unemployment decreases upon offshoring in the presence of perfect intersectoral labor mobility. If, as a result, labor moves to the sector with the lower (or equal) vacancy costs, there is an unambiguous decrease in economywide unemployment. With imperfect intersectoral labor mobility, unemployment in the offshoring sector can rise, with an unambiguous unemployment reduction in the non-offshoring sector. Imperfect labor mobility can result in a mixed equilibrium in which only some firms in the industry offshore, with unemployment in this sector rising.

Suggested Citation

  • Mitra, Devashish & Ranjan, Priya, 2009. "Offshoring and Unemployment: The Role of Search Frictions and Labor Mobility," IZA Discussion Papers 4136, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp4136
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    References listed on IDEAS

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    Cited by:

    1. Éva Polgár & Julia Wörz, 2010. "No risk and some fun? Trade and wages in the enlarged European Union," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 37(2), pages 127-163, May.
    2. Eva Katalin Polgar & Julia Woerz, 2011. "Trade With Central and Eastern Europe: Is It Really a Threat to Wages in the West?," DANUBE: Law and Economics Review, European Association Comenius - EACO, issue 1, pages 1-31, March.
    3. Schmerer, Hans-Jörg, 2012. "Skill-biased labor market reforms and international competitiveness," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 6, pages 1-39.
    4. Lindic, Mojca, 2015. "Global value chains and the effects of outsourcing and offshoring on firms: Evidence from matched firm-employee data," MPRA Paper 67437, University Library of Munich, Germany.
    5. Mine Zeynep Senses & Pravin Krishna, 2009. "International Trade and Labor Income Risk in the United States," 2009 Meeting Papers 471, Society for Economic Dynamics.

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    More about this item

    Keywords

    unemployment; search; offshoring; trade;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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