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

By Devashish Mitra, Priya Ranjan. Social Science Research Network, 2009

142 citations recorded by the source corpus.

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.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/72f50b04c2bd96e14d4bfdba5d568c4a5f347cce

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In Economics and Econometrics

Citations in the corpus

Trade liberalization and unemployment: Theory and evidence from India (2012, unknown): “At this coarse level of disaggregation, it is difficult to differentiate between import tariffs on 5 See Mitra and Ranjan (2010) for the impact of offshoring on unemployment in a search model with mobility cost. output and inputs as a high fraction of the input into such a sector comes from itself.”
Offshoring and Labor Markets (2018, background): “If offshored inputs and domestic labor are perfect substitutes, there would be no productivity effect of offshoring and no reduction in unemployment in the framework of Mitra and Ranjan (2010).”