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OFFSHORING PRODUCTION: A SIMPLE MODEL OF WAGES, PRODUCTIVITY, AND GROWTH
Author(s) -
DAVIS COLIN,
NAGHAVI ALIREZA
Publication year - 2011
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.2010.00293.x
Subject(s) - offshoring , economics , productivity , labour economics , production (economics) , manufacturing sector , efficiency wage , wage , manufacturing , endogenous growth theory , microeconomics , business , outsourcing , human capital , macroeconomics , market economy , marketing
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)