Full Citation
Title: Intermediate Good Sourcing, Wages and Inequality: From Theory to Evidence
Citation Type: Miscellaneous
Publication Year: 2013
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Abstract: In 2011 intra-firm imports accounted for 50.3 percent of the 1.13 trillion U.S. imports, while from 2002-2011 the share of imports in the total purchase of intermediate inputs in the U.S. grew by 30 percent. In this chapter I present a new model that investigates the effect of offshoring and outsourcing on wage and inequality. Utilizing methods from search thoery, I model the decisions regarding outsourcing and offshoring as being driven by labor market frictions, which implies heterogeneous firm selection into sourcing locations and ownership structure. Testing the predictions of my model, I find evidence that ownership plays an important role in determining the effect of offshoring on domestic wages and these effects are also governed by industry specific skill intensity of production as well as the offshorability of an occupation. For example, for workers employed by skill intensive industries, in occupations that cannot be offshored, a one standard deviation increase in intra-firm offshoring increases wages by approximately $7,000 whereas the same increase in inter-firm offshoring has a smaller and negative effect on wages. In addition to these heterogeneous effects on average wages, I also find that offshoring differentially effects the industry specific income distribution depending on ownership as well as the offshorability of occupations.
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Authors: Luck, Philip
Publisher: University of California, Davis
Data Collections: IPUMS USA
Topics: Labor Force and Occupational Structure, Other
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