Offshoring in Developing Countries: Labor Market Outcomes, Welfare, and Policy

37 Pages Posted: 1 Jun 2016 Last revised: 5 Jan 2019

See all articles by Subhayu Bandyopadhyay

Subhayu Bandyopadhyay

Federal Reserve Bank of St. Louis - Research Division; IZA Institute of Labor Economics; West Virginia University

Arnab Basu

Cornell University

Nancy H. Chau

Cornell University - School of Applied Economics and Management; IZA Institute of Labor Economics

Devashish Mitra

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

Multiple version iconThere are 3 versions of this paper

Date Written: 2016-05-31

Abstract

Does a reduction in offshoring cost benefit workers in the world's factories in developing countries? Using a parsimonious two-country model of offshoring we find very nuanced results. These include cases where wages monotonically improve, worsen, as well as where wages exhibit an inverted U-shaped relationship with the offshoring cost. We identify qualitative conditions under which these relationships hold. Since global welfare always rises with an improvement in offshoring technology, we find that there is a role for a wage tax or a minimum wage in the developing country. We derive the optimal levels of such policies.

Keywords: Wages, International Offshoring, Wage Tax, Minimum Wage

JEL Classification: F11, F13, F16, F66, O19, O24

Suggested Citation

Bandyopadhyay, Subhayu and Basu, Arnab and Chau, Nancy H. and Mitra, Devashish, Offshoring in Developing Countries: Labor Market Outcomes, Welfare, and Policy (2016-05-31). FRB St. Louis Working Paper No. 2016-11. Available at SSRN: https://ssrn.com/abstract=2787563 or http://dx.doi.org/10.20955/wp.2016.011

Subhayu Bandyopadhyay (Contact Author)

Federal Reserve Bank of St. Louis - Research Division ( email )

411 Locust St
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St. Louis, MO 63011
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IZA Institute of Labor Economics

P.O. Box 7240
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West Virginia University ( email )

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304-293-7879 (Phone)
304-293-7061 (Fax)

Arnab Basu

Cornell University ( email )

Ithaca, NY 14853
United States

Nancy H. Chau

Cornell University - School of Applied Economics and Management ( email )

Ithaca, NY 14853
United States
607-255-4463 (Phone)
607-255-9984 (Fax)

IZA Institute of Labor Economics

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

Devashish Mitra

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

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