TY - JOUR
T1 - Offshoring to a developing nation with a dual labor market
AU - Bandyopadhyay, Subhayu
AU - Basu, Arnab
AU - Chau, Nancy
AU - Mitra, Devashish
N1 - Publisher Copyright:
© 2020, Federal Reserve Bank of St. Louis.
PY - 2020
Y1 - 2020
N2 - We present a model of offshoring of tasks to a developing nation characterized by a minimum-wage formal sector and a flexible-wage informal sector. Some offshored tasks are outsourced by the formal sector to the lower-wage informal sector. Productivity improvements in performing offshored tasks in the developing nation increase offshoring, but not necessarily formal-to-informal sector outsourcing, which can cause the developed nation’s wage to fall. Productivity improvements in the developing nation’s informal sector expand both offshoring and outsourcing, causing the developed nation’s wage to rise. When the minimum wage is reduced in the developing nation, the developed nation’s wage falls when most of the efficiency gains accrue to the informal sector. (JEL F1).
AB - We present a model of offshoring of tasks to a developing nation characterized by a minimum-wage formal sector and a flexible-wage informal sector. Some offshored tasks are outsourced by the formal sector to the lower-wage informal sector. Productivity improvements in performing offshored tasks in the developing nation increase offshoring, but not necessarily formal-to-informal sector outsourcing, which can cause the developed nation’s wage to fall. Productivity improvements in the developing nation’s informal sector expand both offshoring and outsourcing, causing the developed nation’s wage to rise. When the minimum wage is reduced in the developing nation, the developed nation’s wage falls when most of the efficiency gains accrue to the informal sector. (JEL F1).
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U2 - 10.20955/r.102.237-53
DO - 10.20955/r.102.237-53
M3 - Article
AN - SCOPUS:85089115337
SN - 0014-9187
VL - 102
SP - 237
EP - 253
JO - Federal Reserve Bank of St. Louis Review
JF - Federal Reserve Bank of St. Louis Review
IS - 3
ER -