Applied Economics Workshop
نویسنده
چکیده
This paper develops and evaluates a novel mechanism through which imports of unskilled intermediates (offshoring) increase wages of both skilled and unskilled workers by inducing skill-biased technology adoption and innovation in developed countries. Data for a panel of manufacturing industries in the United States over 1974-2005, strongly support the technology channel with a doubling of offshoring increasing equipment-labor ratio by 13% and innovation intensity by 40%. This is the primary channel through which offshoring increases the skill premium, but also increases the employment and wage-bills of both skilled and unskilled workers. The labor market effects through the substitution of unskilled workers, as predicted by the standard Heckscher-Ohlin theory, are small. Quantitative results from a formal two-country trade model are consistent with these empirical results and indicate 17% gain in welfare. A model with only the Heckscher-Ohlin channel yields a decline in unskilled wages, higher wage inequality, and a much smaller welfare gain. JEL Classifications: F16, J31, O33
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