Offshoring and unemployment: The role of search frictions labor mobility

Devashish Mitra, Priya Ranjan

Research output: Contribution to journalArticle

59 Scopus citations

Abstract

In a two-sector, general-equilibrium model with labor-market search frictions, we find that the 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 offshore, with unemployment in the offshoring sector rising.

Original languageEnglish (US)
Pages (from-to)219-229
Number of pages11
JournalJournal of International Economics
Volume81
Issue number2
DOIs
StatePublished - Jul 1 2010

Keywords

  • Offshoring
  • Search
  • Trade
  • Unemployment

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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