Can Offshoring Reduce Unemployment?

In this paper, in order to study the impact of offshoring on sectoral and economy wide rates of unemployment, we construct a two-sector, general-equilibrium model in which labor is mobile across the two sectors, and unemployment is caused by search frictions. We find that, contrary to general perception, wage increases and sectoral unemployment decreases due to offshoring. This result can be understood to arise from the productivity enhancing (cost reducing) effect of offshoring. If the search cost is identical in the two sectors, or is higher in the sector which experiences o¤shoring, the economy wide rate of unemployment decreases. When we modify the model to disallow intersectoral labor mobility, the negative relative price e¤ect on the offshoring sector may offset the positive productivity effect, and result in a rise in unemployment in that sector. In the other sector, offshoring has a much stronger unemployment reducing effect in this case.

Search and Offshoring in the Presence of "Animal Spirits"

In this paper, we introduce two sources of unemployment in a two-factor general equilibrium model: search frictions and fairness considerations. We find that a binding fair-wage constraint increases the unskilled unemployment rate and can at the same time lead to a higher unemployment rate for skilled workers, as compared to an equilibrium where fairness considerations are absent or non-binding. Starting from a constrained equilibrium, an increase in the fairness parameter leads to increases in both skilled and unskilled unemployment. The wage of unskilled workers increases but the wage of skilled workers decreases. Next we allow for offshoring of unskilled jobs in our model, and we find that, as a result, it becomes more likely that the fair-wage constraint binds. Offshoring of unskilled jobs always leads to an increase in skilled wage, a decrease in skilled unemployment and an increase in unskilled unemployment. The presence of fairness considerations increases the adverse impact of offshoring on unskilled unemployment. The unskilled wage can increase or decrease as a result of offshoring.fair wages, unemployment, strategic effect, offshoring

Characterisation of semi-solid deformation behaviour of aluminium-copper alloys via combined x-ray microtomography and nite element modelling

The production of aluminium sheet is expensive and energy intensive despite the reduced environmental impact during use. Twin roll casting is a method of directly producing aluminium alloys in near net shape directly to sheet at a fraction of the energy costs of conventional DC casting / hot rolling. It also requires a fraction of the capital cost. Although sheet can be produced, defects (segregates, surface bleeds, buckling, etc.) can arise which limit the range of alloys which can be cast. This project aims to elucidate the complex mechanisms causing these defects through a combined experimental and computational study of semi-solid deformation in aluminium alloys. Columnar dendritic structures were generated for Al-Cu alloys through directional solidi cation experiments and quanti ed in three dimensions (3D) using x-ray microtomography (XMT). The -Al and the Cu-rich interdendritic liquid were segmented using image analysis. These 3D datasets were exported as meshes to be used in control volume and nite element codes. Firstly, the ow between the dendrites was simulated by solving the Stokes equation and permeability tensor was calculated as a function of the fraction solid. The size of representative volume element was estimated to be 4-6 times the characteristic length scale in the microstructure. Secondly, nite element simulations were performed on 3D columnar dendritic structures to estimate their mechanical properties and derive constitutive behaviour as a function of temperature, strain-rate and fraction solid. Temperature and strain-rate dependent compression tests were performed in the Gleeble on alloys with dendritic composition to determine the mechanical properties of the monolithic Al-dendrites. The fraction solid dependency term in the constitutive equation was determined as a purely geometric factor which could be easily replicated in other alloys systems. Lastly, hot tearing was directly observed in an Al- 12 wt.%Cu alloy by combining x-ray/synchrotron radiography with a new tensile/compression apparatus capable of measuring strain, load and quantifying the microstructure during controlled solidi cation of Al alloy specimen. Using this new apparatus, the deformation of primary dendrites and the concomitant ow of Cu-rich interdendritic uid was observed during isothermal and constant cooling rate conditions. Initially, strain was observed to be accommodated by liquid ow, but as the load is increased, void formation combined with liquid necking between grains was prevalent

Y2K and Offshoring: The Role of External Economies and Firm Heterogeneity

We construct a model of offshoring with externalities and firm heterogeneity. Due to the presence of externalities, temporary shocks like the Y2K problem can have permanent effects, i.e., they can permanently raise the extent of offshoring in an industry. Also, the initial advantage of a country as a potential host for outsourcing activities can create a lock in effect, whereby late movers have a comparative disadvantage. Furthermore, the existence of firm heterogeneity along with externalities can help explain the dynamic process of offshoring, where the most productive firms offshore first and the others follow later. Finally, we show the possibility of complementarity between two modes of offshoring: FDI and offshore outsourcing.

Reciprocated Unilateralism in Trade Reforms with Majority Voting

This paper shows how unilateral liberalization in one country can increase the voting support for reciprocal reduction in trade barriers in a partner country. When trade policies are determined simultaneously in the two countries, we show the possibility of multiple political equilibria - countries may both be protectionist or trade freely with each other. Starting with trade protection in both countries, a unilateral reform in one country is thus shown to bring about a free trade equilibrium (a self-enforcing state) that is consistent with majority voting in both countries.

Offshoring and Unemployment

In this paper, in order to study the impact of offshoring on sectoral and economywide rates of unemployment, we construct a two sector general equilibrium model in which labor is mobile across the two sectors, and unemployment is caused by search frictions. We find that, contrary to general perception, wage increases and sectoral unemployment decreases due to offshoring. This result can be understood to arise from the productivity enhancing (cost reducing) effect of offshoring. If the search cost is identical in the two sectors, or even if the search cost is higher in the sector which experiences offshoring, the economywide rate of unemployment decreases. We also find multiple equilibrium outcomes in the extent of offshoring and therefore, in the unemployment rate. Furthermore, a firm can increase its domestic employment through offshoring. Also, such a firm's domestic employment can be higher than a firm that chooses to remain fully domestic. When we modify the model to disallow intersectoral labor mobility, the negative relative price effect on the sector in which firms offshore some of their activity becomes stronger. In such a case, it is possible for this effect to offset the positive productivity effect, and result in a rise in unemployment in that sector. In the other sector, offshoring has a much stronger unemployment reducing effect in the absence of intersectoral labor mobility than in the presence of it. Finally, allowing for an endogenous number of varieties provides an additional indirect channel, through which sectoral unemployment goes down due to the entry of new firms brought about by offshoring.

Reciprocated Unilateralism in Trade Policy: An Interest-Group Approach

Using the menu-auction approach to endogenous determination of tariffs and allowing additionally for lobby formation itself to be endogenous, this paper analyzes the impact of unilateral trade liberalization by one country on its partner's trade policies. We find that such unilateral liberalization may induce reciprocal tariff reductions by the partner country. Intuitively, unilateral liberalization by one country has the effect of increasing the incentives for the export lobby in the partner country to form and to lobby effectively against the import-competing lobby there for lower protection.