UNU-MERIT Working Papers Series
Offshoring medium-skill tasks, low-skill unemployment and the skill-wage structure
Ehsan Vallizadeh, Joan Muysken & Thomas Ziesemer #2016-070This paper studies the direct and indirect channels through which
offshoring affects the domestic skillwage structure and employment
opportunities. To identify these channels, we develop a task-based model
with unemployment that accounts for skill heterogeneity and endogenous
allocation of domestic tasks to skill groups and abroad. A decline in
offshoring costs of medium skill-intensive tasks induces i) a
specialization effect towards low and high skill-intensive tasks,
explaining one source of wage polarization, ii) an internal skill-task
reallocation effect, and iii) a productivity effect due to production
cost reductions. The key determinants of these channels are the
elasticity of substitution between domestic and offshore tasks and the
elasticity of task productivity schedules between domestic skill groups
and between domestic and offshore workers across tasks.
Keywords: Skill-Task Assignment, Offshoring, Productivity Effect,
Equilibrium Unemployment, Skill-Wage Structure
JEL Classification: F16, F66, J21, J24, J64
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