Offshoring, Employment, and Aggregate Demand
Posted: 21 Jul 2016
Date Written: July 20, 2016
The article uses a demand-constrained small-open-economy model in the tradition of Keynes and Kalecki to study the effects of offshoring on aggregate demand and domestic employment. Offshoring is represented as labor-saving import-using technical change. The results depend on the behavior of the markup on unit costs. If firms absorb the competitiveness gain through higher markups, the scale effect of labor demand is negative, and offshoring unambiguously reduces domestic demand and employment. If the markup remains constant, the net effect of offshoring on domestic demand and employment is ambiguous; it depends crucially on the price elasticity of exports.
Keywords: Offshoring, Global Value Chains, Trade Flows, Labor Demand, Unemployment, Aggregate Demand, Germany
JEL Classification: F16, F41, J23
Suggested Citation: Suggested Citation