Offshoring, Low-Skilled Immigration, and Labor Market Polarization

31 Pages Posted: 4 Apr 2015

See all articles by Federico Mandelman

Federico Mandelman

Federal Reserve Bank of Atlanta

Andrei Zlate

Boston College; Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: December 2014

Abstract

During the last three decades, jobs in the middle of the skill distribution disappeared, and employment expanded for high- and low-skill occupations. Real wages did not follow the same pattern. Although earnings for the high-skill occupations increased robustly, wages for both low- and middle-skill workers remained subdued. We attribute this outcome to the rise in offshoring and low-skilled immigration, and we develop a three-country stochastic growth model to rationalize this outcome. In the model, the increase in offshoring negatively affects the middle-skill occupations but benefits the high-skill ones, which in turn boosts aggregate productivity. As the income of high-skill occupations rises, so does the demand for services provided by low-skill workers. However, low-skill wages remain depressed as a result of the surge in unskilled immigration. Native workers react to immigration by upgrading the skill content of their labor tasks as they invest in training.

Keywords: labor market polarization, task upgrading, offshoring, labor migration, heterogeneous agents, international business cycles

JEL Classification: F16, F41

Suggested Citation

Mandelman, Federico and Zlate, Andrei, Offshoring, Low-Skilled Immigration, and Labor Market Polarization (December 2014). FRB Atlanta Working Paper No. 2014-28. Available at SSRN: https://ssrn.com/abstract=2580493 or http://dx.doi.org/10.2139/ssrn.2580493

Federico Mandelman (Contact Author)

Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

Andrei Zlate

Boston College ( email )

Boston College, Department of Economics
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3806
United States

HOME PAGE: http://www2.bc.edu/~zlate/

Board of Governors of the Federal Reserve System

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