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

36 Pages Posted: 28 Apr 2009

See all articles by Devashish Mitra

Devashish Mitra

Syracuse University - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Priya Ranjan

University of California, Irvine - Department of Economics

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.

Keywords: trade, offshoring, search, unemployment

JEL Classification: F11, F16, J64

Suggested Citation

Mitra, Devashish and Ranjan, Priya, Offshoring and Unemployment: The Role of Search Frictions and Labor Mobility. IZA Discussion Paper No. 4136. Available at SSRN: https://ssrn.com/abstract=1395243

Devashish Mitra (Contact Author)

Syracuse University - Department of Economics ( email )

The Maxwell School of Citizenship & Public Affairs
133 Eggers Hall
Syracuse, NY 13244-1020
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Priya Ranjan

University of California, Irvine - Department of Economics ( email )

3151 Social Science Plaza
Irvine, CA 92697-5100
United States

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