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Exposure to the new wave of offshoring: An unemployment perspective
Author(s) -
Zhang Rui
Publication year - 2018
Publication title -
the world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.594
H-Index - 68
eISSN - 1467-9701
pISSN - 0378-5920
DOI - 10.1111/twec.12600
Subject(s) - offshoring , unemployment , complementarity (molecular biology) , economics , labour economics , productivity , tertiary sector of the economy , manufacturing sector , service (business) , business , economy , macroeconomics , outsourcing , genetics , marketing , biology
This paper examines the impact of increasing service offshoring in a two‐sector economy. We find that it leads to lower domestic unemployment if the marginal task‐specific offshoring cost in the service sector is sufficiently large. Under this condition, the jobs created due to enhanced productivity outweigh the jobs that are destroyed. The reduction in unemployment increases the cost of hiring domestic workers, thus encouraging firms in the manufacturing sector to increase their offshoring scale and productivity. This, in turn, increases their cost savings and may lead to a further decrease in unemployment. Hence, complementarity between two sectors’ offshoring activities may emerge. We calibrate the model using economic parameters from Belgium, and the calibration results predict varied unemployment trends and impacts on manufacturing‐sector offshoring activities with different task‐specific offshoring cost schedules.